The Impact of CEO Successor Origins on Income Smoothing
Chao-Jung Chen/Department of Accounting, National Pingtung University
Abstract
According to the career concerns hypothesis, executives may smooth earnings to retain their positions or avoid interference. This study investigates whether the successor origin of chief executive officers (CEOs) (outsider versus insider CEOs) affects the degree of income smoothing, and further investigates whether different departure types of predecessor CEOs (voluntary versus forced CEO turnover) affect the successor CEOs’ income smoothing behavior. This study decomposes income smoothing into informational and garbling components, and tests each component separately. Using samples of the listed companies of Taiwan Stock Exchange (TWSE) and Taipei Exchange (TPEx) from 1996 to 2014, this study empirically shows that, on average, the degree of income smoothing is higher among outsider CEOs in their early years than among insider CEOs’, in particularly, the garbling component of smoothing is higher. Furthermore, this study finds that the informational component of smoothing is higher among outsider CEOs who follow a voluntary CEO turnover in their early years, but the garbling component of smoothing is higher among outsider CEOs who follow a forced CEO turnover in their early years. Moreover, the garbling component of smoothing is lower among inside CEOs who follow a forced CEO turnover in their early years.
Keywords
Outsider successorInsider successorInformational components and the garbling components
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