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다국어 초록 (Multilingual Abstract)

This study examines the empirical evidence on earnings management associated with CEO turnover using performance-matched discretionary accrual measures.It is suggested that a new CEO has an incentive to report lower earnings by using income-decreasing discretionary accruals, because he/she can blame the prior CEO for poor performance of the period during which he/she was newly appointed as a CEO. This practice would allow new management to take credit for improving performance in the following periods. This can be accomplished through initial large discretionary write-offs because this behavior sets a low benchmark against which future performance is judged. Existing studies have used discretionary accrual measures that could cause measurement error problems by not controlling for the effect of performance to test earnings management. We attempt to re-examine earnings management associated with CEO turnover controlling for the effect of performance. We additionally investigate whether the degree of discretionary accruals varies with the timing of CEO turnover, voluntary vs. forced CEO turnover, and the CEO succession type (insider vs. outsider). We estimate Equation (5) to examine earning management associated with CEO turnover after controlling other variables including firm size, debt ratio, audit firm and ownership structure, which have been considered to affect discretionary accrual in prior studies. Table 8 displays the results. The fiscal year in which the CEO changes is defined as the transition year; thus the year preceeding the transition year is the prior CEO`s last full fiscal year, and the transition year is the first partial year for the new CEO. Year 0 is the transition year. The TY dummy variable is coded as zero in years -3 to -1 and one in year 0. The TY coefficient is negative and significantly different from zero at the 0.01 level. This negative association between CEO turnover and performance matched discretionary accruals implies income-decreasing earnings management of a new CEO. Additionally, to investigate whether the degree of discretionary accruals varies with the timing of CEO turnover, the voluntary vs. forced CEO turnover, and the CEO succession type (insider vs. outsider), we estimate Equation (6) which adds TY*Month, TY*Remaining and TY*Inout variables in Equation (5). These variables are the multiplication of TY dummy variable and each variable, Month, Remaining and Inout. ``Month`` is one when the timing of turnover is ``after March`` and zero otherwise. ``Remaining``is one when the prior CEO still remains in the company and zero otherwise. ``Inout`` is one when a new CEO comes from outside the company and zero otherwise. The regression result of Equation (6) is reported in Table 9. The TY*Month coefficient is negative and significant. This evidence suggests that discretionary write-offs are greater in the case of ``before March`` turnovers compared to ``after March`` ones and this is consistent with the argument that when the responsibility for the performance in a transition year can be attributed to the predecessors, new CEO`s tend to write off more. However other two variables in the regression, TY*Month and TY*Inout, are not statistically significant and we could not find any evidence that a voluntary vs. forced CEO turnover or the CEO succession type affects the degree of the discretionary write-offs.

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참고문헌 (Reference)

1 Jung, "[Printed in Korean]" 1992

2 Elliott, "Write-offs as Accounting Procedures to Manage Perceptions Journal of Accounting Research 26" 1988

3 Oh, H. J, "Top management changes and stock prices" Printed in Korean 27 : 55-80, 2002

4 Becker, C.L, "The effect of audit quality on earning management" 1-24, 1998spring

5 Shim, D. S, "The disclosure on CEO change and stock price response" Printed in Korean 29 : 685-710, 2000

6 DeAngelo, "The Use of Accounting Performance Measures in Proxy Contests Journal of Accounting and Economics 10" 1988

7 Jeon, K. A, "The Relationship between New Audit Committee Establishment and Earnings Management" Printed in Korean 29 : 143-177, 2004

8 Park, J.S and E. C. Lee, "The Reform of Accounting Systems and the Usefulness of Accounting Information" printed in Korean 28 : 105-134, 2003

9 Kwon, S. Y, "The Information content of accounting information in the capital market" Sin Young Sa. [Printed in Korean] 2003

10 Kothari, S, "Performance matched discretionary accrual measures" 39 : 163-197, 2005