CEO Origin and Accrual-Based Earnings Management

Abstract

This study examines the influence of CEO origin on accrual-based earnings management and how these effects evolve over the CEO's tenure in office. Compared with CEOs promoted from within the company, CEOs recruited from outside have a stronger incentive to demonstrate their abilities in the initial years after their appointment; these outside CEOs also may have a lower expectation of surviving the short run. We predict and find that outside CEOs engage in greater income-increasing manipulation in the early years of their tenure. However, the differences in earnings management practices become insignificant after CEOs survive the short run. Our results are robust to a variety of alternative h..