Earnings Management around Founder CEO Re-appointments and Successions in Family Firms
European Corporate Governance Institute - Finance Working Paper No. 620/2019
European Financial Management, forthcoming, https://doi.org/10.1111/eufm.12307
59 Pages Posted: 29 Aug 2019 Last revised: 13 Jul 2021
Date Written: August 1, 2019
Abstract
This paper studies reappointment of a chief executive officer (CEO) and succession events in listed family firms with an incumbent family CEO. We explore whether family firms with a founder CEO are more likely to engage in earnings management preevent than other family firms. We find evidence of preevent upward earnings management for firms that reappoint their founder CEO but no for other family firms. These findings suggest that the costs and benefits from earnings management change around founder CEO reappointments in family firms. Investors, auditors, policymakers and regulators should be aware of the temptation of founder CEOs to inflate earnings preceding their reappointment.
Keywords: earnings management, family firms, founders, socio-emotional wealth, CEO turnover, CEO successions
JEL Classification: G32, G34
Suggested Citation: Suggested Citation