Abstract:
Following a change in CEO, US firms manage earnings downward by adjusting real business activities and accruals. The decision of new-CEO firms to give earnings a “bath” is influenced by CEO compensation, institutional investor concentration, analyst following and capital structure. The choice of real versus accrual-based earnings management strategies depends on the firm’s ability to use an accrual-based bath. These earnings “baths” are more pronounced after external CEO successions.
