The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries: The role of investor protection

Jinshuai Hu*, Jeong-Bon Kim

*Corresponding author for this work

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

6 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)91-107
JournalJournal of International Accounting, Auditing and Taxation
Volume34
Online published15 Feb 2019
DOIs
Publication statusPublished - Mar 2019

Research Keywords

  • Cash flow
  • CEO turnover
  • Contractual usefulness
  • International accounting
  • Investor protection

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