TY - JOUR
T1 - The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries
T2 - The role of investor protection
AU - Hu, Jinshuai
AU - Kim, Jeong-Bon
PY - 2019/3
Y1 - 2019/3
N2 - This study investigates the role of investor protection in determining the relative usefulness of cash flows versus accrual earnings for assessing Chief Executive Officer (CEO) performance and replacing poorly performing CEOs. Using a large sample of listed firms from 41 countries, we find that as the strength of investor protection decreases, the likelihood of CEO turnover becomes more sensitive to cash flow performance but less sensitive to accrual earnings. Further analysis shows that the availability of analysts’ cash flow forecasts enhances the sensitivity of CEO turnover to cash flows, and this sensitivity is more pronounced in countries with weaker investor protection. Collectively, our results suggest that cash flow information plays a more vital role than accrual earnings in facilitating efficient contracting between corporate boards and CEOs in an environment with poor protection of investor rights.
AB - This study investigates the role of investor protection in determining the relative usefulness of cash flows versus accrual earnings for assessing Chief Executive Officer (CEO) performance and replacing poorly performing CEOs. Using a large sample of listed firms from 41 countries, we find that as the strength of investor protection decreases, the likelihood of CEO turnover becomes more sensitive to cash flow performance but less sensitive to accrual earnings. Further analysis shows that the availability of analysts’ cash flow forecasts enhances the sensitivity of CEO turnover to cash flows, and this sensitivity is more pronounced in countries with weaker investor protection. Collectively, our results suggest that cash flow information plays a more vital role than accrual earnings in facilitating efficient contracting between corporate boards and CEOs in an environment with poor protection of investor rights.
KW - Cash flow
KW - CEO turnover
KW - Contractual usefulness
KW - International accounting
KW - Investor protection
UR - http://www.scopus.com/inward/record.url?scp=85062025422&partnerID=8YFLogxK
UR - https://www.scopus.com/record/pubmetrics.uri?eid=2-s2.0-85062025422&origin=recordpage
U2 - 10.1016/j.intaccaudtax.2019.02.005
DO - 10.1016/j.intaccaudtax.2019.02.005
M3 - RGC 21 - Publication in refereed journal
SN - 1061-9518
VL - 34
SP - 91
EP - 107
JO - Journal of International Accounting, Auditing and Taxation
JF - Journal of International Accounting, Auditing and Taxation
ER -