Strategic Impression Management Preceding Family CEO Succession

Abstract

A critical issue for family businesses is how to successfully transfer specific assets associated with stakeholders to later generations as high information asymmetry regarding family heirs during succession prevents the transition of these assets. An important strategy that facilitates the continued reservation of the specific assets for the firm upon CEO succession is to manage stakeholders’ impression toward the incoming family CEO. This study contributes to the literature on impression management and family succession by analyzing how a family firm’s behavior is affected in terms of its impression management strategy of increasing its level of upward earnings management prior to the CEO turnover. We found that earnings management significantly increases only when the incoming CEO is a family heir. Moreover, the results showed that firms with a succeeding family CEO who has lower seniority experienced a higher level of earnings management. The evidence further suggests that pre-turnover earnings management is greater when CEO turnover is voluntary, when the founder still serves on the board, and when there is a higher percentage of family ownership.