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Purpose – We investigate the impact of CEO turnover on performance and accounting-based outcomes following major business restructurings.Design/Methodology/Approach – We…
Purpose – We investigate the impact of CEO turnover on performance and accounting-based outcomes following major business restructurings.
Design/Methodology/Approach – We analyze a sample of 217 major operational restructurings during the period 1999–2007 using regressions and other statistical tests.
Findings – We document significant improvements in postrestructuring operating and investment efficiencies with little differentiation between restructurings that involve a change in CEO and those that involve continuing CEOs. However, we find evidence of lower accounting quality for the continuing CEO firms. First, restructuring charges of CEO turnover firms are associated with lower current period unexpected core earnings and higher future period unexpected core earnings (lower levels of classification shifting). Second, CEO turnover firms have a significantly lower percentage of (i) restructuring charge reversals and (ii) prereversal shortfalls (in meeting analyst forecast estimates) followed by reversals (suggesting lower levels of subsequent earnings management). Therefore, turnover CEOs are less likely to manipulate restructuring charges to mask true economic performance than continuing CEOs. Overall, our evidence suggests continuing CEOs undertake less substantial restructurings, while opportunistically reporting similar charges and performance improvements, consistent with attempts to pool with new CEO hires to keep their jobs.
Originality/Value – Overall, our results highlight the key economic role played by top corporate managers in major business restructurings, suggesting that CEO turnover leads to both real changes in managerial actions and altered reporting incentives.