CEO Turnover and Accounting Earnings: The Role of Earnings Persistence

Inho Suk (), Seungwon Lee () and William Kross ()
Additional contact information
Inho Suk: School of Management, State University of New York at Buffalo, Buffalo, New York 14260; Korea University Business School, Seoul 02841, Korea
Seungwon Lee: School of Business Administration, Penn State Harrisburg, Middletown, Pennsylvania 17057
William Kross: School of Management, State University of New York at Buffalo, Buffalo, New York 14260

Management Science, 2021, vol. 67, issue 5, 3195-3218

Abstract: Although earnings persistence should have a nontrivial impact on chief executive officer (CEO) turnover decisions, prior studies have paid little attention to the role of earnings persistence in CEO turnover decisions. This study examines the effect of earnings persistence on the sensitivity (i.e., the negative relation) of CEO turnover to earnings performance. First, we find that the sensitivity of forced CEO turnovers to earnings performance is greater when earnings are more persistent. We also show that among numerous earnings attributes, earnings persistence is the most direct and dominant attribute in explaining CEO turnover-earnings sensitivity. Further, when the effect of earnings persistence on CEO compensation-earnings sensitivity is weak, the effect of earnings persistence on CEO turnover-earnings sensitivity is stronger, suggesting that the executive discipline system substitutes for the compensation system when earnings persistence is neglected by compensation policies. Overall, our findings suggest that earnings persistence plays a crucial role in CEO turnover decisions by elevating the board’s knowledge on the future performance implications of current earnings. Finally, the role of persistence is even more crucial when it is neglected by executive compensation policies.

Keywords: earnings persistence; CEO turnover; CEO turnover-performance sensitivity; pay-performance sensitivity; corporate governance (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2019.3559 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:5:p:3195-3218

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().