Chief Executive Officer Tenure Research Articles

The Impact of Audit Committees and Chief Executive Officer Characteristics on Real Earnings Management

Earnings management is an opportunistic behavior influenced by many factors. However, previous studies have not extensively investigated the impact of audit committee mechanisms and Chief Executive Officer (CEO) characteristics on real earnings management. This study aims to analyze the impact of audit committee mechanisms and CEO characteristics on real earnings management. The study utilizes secondary data from manufacturing companies listed on the Indonesia Stock Exchange from 2020 to 2022. The audit committee mechanism is proxied by using two measurements i.e. the number of audit committee meetings and the educational background of the audit committee, Meanwhile, CEO characteristics are proxied by the gender and the CEO's tenure. By applying multiple regression, this study finds that the number of audit committee meetings and CEO’s tenure have significant negative effects on real earnings management. Meanwhile, the background of the audit committee does not affect real earnings management. Interestingly, this study finds that male CEOs decrease real earnings management. Therefore, this research provides evidence that the number of audit committee meetings and CEO’s tenure play significant roles in reducing opportunistic behavior in a company.

CEO attributes and borrowing costs: exploring the moderating role of financial literacy

ABSTRACT This study examines the effect of Chief Executive Officer (CEO) attributes on borrowing costs and the moderating role of the CEO’s financial literacy on this relationship. We employed 2926 firm-year observations of non-financial firms listed on the Pakistan Stock Exchange. We used ordinary least squares regression to test the hypotheses and further employed fixed effect analysis, generalized method of moments estimation and two-stage least squares analysis to resolve the possible endogeneity concerns. Our empirical results indicate that CEO age, tenure, ownership and gender are negatively associated with borrowing costs, whereas CEO duality is positively associated with borrowing costs. Furthermore, we report that a financially literate CEO strengthens the relationships in the cases of age, tenure, ownership and gender while it weakens the relationship in the case of CEO duality. Our results provide novel evidence in this context and extend empirical support to upper echelons theory in the case of an emerging economy.

SYCOPHANT CURVE MODEL AND PEARSON CORRELATION COEFFICIENT: AN APPLICATION TO BEHAVIOURAL CHANGE IN NIGERIA

This study investigates the behavioural switch and relationship of people (associates) towards a transiting chief executive officer (CEO). During the tenure of a new CEO, the rate of patronage of different categories of people seeking political and economic relevance increases over time but as the CEO’s tenure wanes, the patronage behavioural pattern decreases. The sycophant curve model (SCM) was proposed to determine the behavioural pattern change of patronage at the onset and transitioning of the CEO tenure to a new CEO. The Pearson correlation coefficient (PCC) was also investigated. The results revealed that during the tenure of any CEO, the associate behaviour is increasingly positive, while during the transitioning period and beyond, the rate of the behavioural switch by associates decreases gradually. The PCC (rp = 0.9966) affirmed a strong positive relationship between the CEO and associates for four years. Meanwhile, rp = –0.9966, indicating a strong negative behavioural switch between the CEO and associates after four years of transition and beyond. This study demonstrated that during the tenure of any CEO, the behavioural switch of the associates towards the CEO is extremely minimal and gradually increases after the transition period and beyond.

Escaping Zombiness: Does Corporate Governance Have the Elixir of Life?

AbstractThis study investigates the influence of corporate governance on firms’ transition into and out of zombiness. We underscore the beneficial role of external members in the corporate governance structure and long‐tenured chief executive officers (CEOs) in facilitating access to the external resources that firms need to be successful. Using a sample of European listed firms over the period 2008–2018, we adopt a dynamic view of zombiness by identifying shifts in the state from zombie to non‐zombie and vice versa. The results show that board independence is a twofold panacea against zombies, prompting zombie recovery and preventing healthy firms from becoming zombies. By contrast, leadership independence, materialized by separating the CEO and chairperson roles, hampers the recovery of zombies, probably because the cost of lacking unified leadership may exceed the benefits of external dependence minimization. Finally, the results suggest that longer CEO tenure helps healthy firms avoid zombiness. When considering a broader array of stakeholders, government bailout programmes impair zombie recovery, and stronger trade unions help healthy firms escape zombiness. Overall, this study brings a ray of hope to the zombie problem and provides a better appraisal of when supporting zombies might be worthwhile vis‐à‐vis saving promising firms and bringing them back to life.

Does a co‐opted director affect a firm's financial distress risk?

AbstractThis study examines the relationship between co‐opted directors (CODIR), measured as the fraction of directors appointed after the Chief Executive Officer (CEO) assumes office to board size, and firms' financial distress risk (FFDR). Understanding the relationship between CODIR and FFDR is imperative due to the significant impact of high risk‐taking on financial crises and the heightened expectations placed on board members for risk oversight. Despite growing research on corporate governance and FFDR, little attention has been paid to the role of CODIRs, presenting a significant gap in the literature. Using a US sample from 1996 to 2019, covering 13,486 firm‐year observations, we document that CODIR reduces FFDR, supporting the hypothesis that co‐opted directors have a lower financial distress risk‐taking propensity than their non‐co‐opted counterparts. We also find that a critical mass of at least three CODIRs and independent CODIRs reduces FFDR. Our results also document that CEO power in the form of CEO duality and CEO tenure, external monitoring in the form of the number of analysts following the firm, competition, and takeover susceptibility do not drive our main conclusions for co‐option and FFDR. Finally, the results show that CODIR reduces FFDR through liquidity channels. The findings remain robust to various definitions of co‐option and distress risk, and are consistent in both difference‐in‐differences analysis and propensity score matching.

The effect of COVID-19 and CEO tenure on environmental and social disclosure scores

Research aims: The study aims to understand the effect of COVID-19 and the tenure of Chief Executive Officers (CEOs) on environmental and social disclosure scores.Design/Methodology/Approach: The research sample included listed Indonesian firms, excluding those in the financial sector, for 2015-2021. The samples were analyzed by cross-sectional data regression and controlled by corporate governance mechanisms proxied by the number of women and independent Boards of Commissioners, leverage, size, profitability, and growth opportunity proxied by price-to-book-value ratio and capital-expenditure-to-depreciation ratio.Research Findings: The COVID-19 pandemic has positively affected environmental and social disclosure scores. While CEO tenure negatively affected social disclosure scores, its effect on environmental disclosure scores was statistically insignificant.Theoretical Contribution/Originality: The study provides empirical evidence on the progression of change in environmental and social disclosure scores triggered by COVID-19.Practitioner/Policy Implications: CEOs need to be persuaded and incentivized to increase their firms’ commitment to enhancing social performance and disclosure scores after COVID-19.Research Limitation/Implications: The effect of the COVID-19 pandemic and CEO tenure on environmental and social disclosure scores from firms with high stock market capitalization were analyzed. The data did not yet consider the medium and small stock market capitalization firms.

Do CEO characteristics affect earnings management?

PurposeThis research paper aims to examine the effect of chief executive officer (CEO) characteristics on earnings management.Design/methodology/approachResearch samples are manufacturing firms listed in the Indonesian Stock Exchange 2015–2021. CEO characteristics include narcissism, gender, age, tenure, experience, nationality and founding family status. Data analysis uses random-effect regression.FindingsThe result shows that higher narcissism CEOs have aggressive characteristics so they will be more likely to engage in accrual and real earnings management. Female CEOs, foreign CEOs and founding-family CEOs have higher monitoring and business ethics characteristics so they will be less likely to engage in accrual and real earnings management. CEOs with higher education levels have higher thinking complexity so they will be more likely to engage in accrual earnings management with higher regulator and auditor monitoring barriers than real earnings management. CEOs with financial and accounting experience are familiar with accounting standards and auditor monitoring barriers so they will be more likely to engage in accrual earnings management than real earnings management. On the other hand, there are no effects of CEO age and tenure on earnings management.Originality/valueThis research contributes to providing evidence of the effect of CEO characteristics on earnings management in a specific industry such as manufacturing firms and emerging markets such as Indonesia with the majority group firms being family firms.

Board independence, CEO tenure, and private firm performance in Nairobi, Kenya

Governing board members includes a mix of non-executive and executive members who seek the best interests of shareholders. Non-executive board members relay on independence to execute their responsibilities and enables better firms’ performance. The independent board members are vetted in by shareholders to reduce agency problems. The study aims to establish how Chief executive officer tenure influence independent board members on decision making to enhance firm performance. Agency theory and stewardship theory were utilized in the study. The explanatory research design was used 371 private firms were the sample size. Data was collected using structured questionnaires. Hierarchical multiple regression models were used to test for direct effect and moderation effect. According to the findings, board member independence is critical for monitoring the CEO and reducing principal-agent conflict, hence enhancing business performance. The independence of board members is critical for organizations to remain inventive and competitive in order to improve firm performance.

CEO tenure, board monitoring and competitive corporate culture: how do they influence integrated reporting?

PurposeThis study aims to explore the association between chief executive officer (CEO) tenure and the quality of information disclosed through integrated reporting quality (IRQ), which combines financial and non-financial data. The authors also investigate how formal (e.g. board independence and gender diversity) and informal (e.g. corporate culture) governance mechanisms influence this association. By analysing these factors, the authors expect to provide valuable insights on the impact of CEO tenure and governance structures on the comprehensive nature of integrated reporting.Design/methodology/approachThis study uses a sample of the top 200 Australian Securities Exchange (ASX)-listed companies from 2015 to 2019. IRQ is measured through levels of compliance with the integrated reporting (IR) framework proposed by the International Integrated Reporting Council (IIRC). The hypotheses are tested using multiple regression analyses.FindingsThe authors find that CEO tenure is negatively associated with IRQ. Furthermore, CEO tenure has a more positive influence on IRQ in the early CEO tenure years than later ones. The authors' study finds that the association between CEO tenure and IRQ is insignificant when firms have a high level of monitoring, as measured by board independence and gender diversity. The authors also document that competitive corporate culture moderates the negative association between CEO tenure and IRQ.Originality/valueThe authors' study highlights the significant impact of internal formal and informal governance mechanisms on disclosure practices in Australia's voluntary IR environment. By shedding light on these factors, the authors' research enhances understanding of Australian companies' IR practices and offers valuable insights for scholars, policymakers and practitioners in the field.

Powerful CEOs and investment efficiency

This study investigates whether chief executive officers (CEOs) with excessive power make efficient investment decisions. We employ a comprehensive measure of CEO power and find that highly powerful CEOs tend to reduce investment efficiency by increasing overinvestment. This inefficiency is more pronounced with strong information asymmetry, agency problems, and product market competition. We also find that a firm's operation complexity and the presence of effective internal and external governance can help mitigate investment inefficiency; however, when most independent directors are co-opted or powerful CEOs are recruited from outside the firm, the investment inefficiency deteriorates. Moreover, inefficiency and overinvestment tend to increase with CEO tenure, the level of CEO power, and financial constraints faced by the firm. These findings shed light on the complex dynamics between CEO power, investment decisions, and various factors influencing their effectiveness.

CEO international experience and firm performance revisited: What’s culture got to do with it?

PurposeThis paper examines the relationship between chief executive officer (CEO) international experience (IE) and firm performance. The authors also examine the symmetry of this relationship, whereby home and host countries would be interchangeable without any significant change in the impact of each cultural dimension on firm performance.Design/methodology/approachFor a sample of CEOs from Fortune's list of Global 500 companies, firm performance was measured as average net margin for the first four years of CEO tenure. IE was the difference between home country culture and that where CEO experience was gained, based on the GLOBE cultural dimensions. Regression then tested the IE/firm performance relationship. For symmetry, distance direction was coded as either positive or negative, depending on whether home country score on a given dimension was higher or lower than that of the host. Moderator regression then tested for whether distance direction impacted the relationship between IE and firm performance.FindingsResults show that overall distance between home and host cultures in aggregate does not have a significant effect on firm performance. However, for specific dimensions, greater distances between the CEO's countries of experience and that of the parent company on in-group collectiveness and performance orientation are associated with higher firm performance, and greater distances on power distance and assertiveness are associated with lower performance. The authors further find asymmetric patterns in the IE–performance relationship, attributable primarily to the fact that, when scores on performance orientation are greater for the home than host country, organizational performance is significantly enhanced.Originality/valueThis study's hypotheses are grounded in theory, combining the human capital perspective with cultural paradox theory. In addition, the authors offer a unique approach for measuring the dimensional distance of culture.

Differential impact of chief executive officer tenure on the firm's external and internal corporate social responsibility: Moderating effects of firm's visibility and slack

AbstractInconsistent corporate social responsibility (CSR) practices across stakeholder groups may induce undesired consequences for the firm. This study investigates the longitudinal and differential effect of chief executive officer (CEO) tenure on external and internal CSR and the moderating effects of two important contingencies relevant to the firm's social investments: firm visibility and slack availability. It presents CEO tenure as an important upper echelon factor that may induce differential preferences toward external and internal CSR and, therefore, CSR inconsistencies. Accordingly, it proposes two important and relevant contingencies and provides additional evidence on how a firm's visibility and slack availability could affect CEO tenure‐related differential behaviors. The findings contribute to studies on the temporal orientations of CEOs and how they impact firm strategic behavior. They also contribute to the literature on firm visibility and slack and how they may interact with certain upper echelon characteristics and affect firm behaviors. The analysis cautions against the perceptions of the relationships between firm‐ and CEO‐level variables and a firm's aggregate CSR.

A new broom sweeps clean? Evidence from CEO tenure and global reporting initiative adoption in China

PurposeThis paper aims to explore the relation between chief executive officer (CEO) tenure and the propensity to adopt the global reporting initiative (GRI) for corporate social responsibility reporting in Chinese firms.Design/methodology/approachThis study used Chinese A-listed firms as sample during 2010–2020. Considering the binary nature of dependent variable, logistic regression model is applied. For robustness, lagged value of independent and control variables, additional control variables and two stage least square regression are used.FindingsThis paper finds that CEO tenure is negatively related to the adoption of GRI reporting standards. Furthermore, this paper finds that this association is less pronounced when CEOs are female and when CEOs have foreign experience. Furthermore, this paper finds that this association is not significant when CEOs are female and when CEOs have foreign experience. This paper also finds that the relationship between CEO tenure and GRI adoption is more pronounced in state-owned enterprises in China. The findings in this paper are robust after controlling for endogeneity.Practical implicationsThe study results are important for understanding the development and implementation of GRI framework especially in China.Originality/valueTo the best of the authors’ knowledge, this is the first study to deeply investigate how CEO tenure can affect adoption of GRI in Chinese firms.

CEO Power, CEO Founder, CEO Financial Expertise, CEO Ownership, CEO Tenure on Bank Performance in Indonesia

The purpose of this research is to examine the influence of the personal characteristics of the chief executive officer (CEO) on the performance of commercial banks in Indonesia. In addition, it also analyzes the nonlinear relationship of CEO power, CEO founder, CEO financial expertise, CEO ownership, and CEO tenure to bank performance. A balanced panel data approach has been used in this study. In particular, fixed effect estimation techniques were used to examine the relationship between CEO power, CEO founder, CEO financial expertise, CEO ownership, CEO tenure, and bank performance from 2015 to 2021. so that the total amount of data processed is 3,780 data. The writer finds that the professional qualifications of CEOs are in bank performance. In addition, the impact of the CEO's financial expertise and tenure was positive and significant on performance. And the influence of CEO power, CEO founder, and CEO ownership was seen to be negative and not crucial to bank performance. CEO tenure is beneficial for bank performance. Experienced CEO contributes to higher bank performance. The results are robust across various bank performance proxies and control variables. This study provides insight into the policy regulators and policymakers entrusted with appointing CEOs in banks in light of the ongoing regulatory reforms in Indonesia. This study is one of the early studies examining the relationship between CEO power, CEO founding, CEO financial expertise, CEO ownership, CEO tenure, and bank performance from an emerging economy perspective. It also expands on existing studies to consider both state-owned and private banks operating in Indonesia.

The Effect of Managerial Entrenchment on the Relationship between Free Cash Flow and Financial Performance on the Egyptian Listed Companies: An Empirical Study

The purpose of this paper is to investigate the effect of managerial entrenchment on the relationship between free cash flow and financial performance by answering the following question: what is the effect of managerial entrenchment on the relationship between free cash flow and financial performance of the listed companies in Egypt? This is considering both the Agency and Stewardship theories. The researcher depends on managerial entrenchment index as a measure of managerial entrenchment consisting of five mechanisms of managerial entrenchment (Independence of the board of directors, chief executive officer duality, chief executive officer tenure, managerial ownership, financial leverage. The researcher uses free cash flow index depending on the following equation ((operating cash flow – capital expenditures)/ book value of total assets at the end of the year). The researcher depends on Tobin Q ratio and return on equity ratio as a measure of financial performance. This study depends on a sample of non-financial companies over the period from 2014 to 2019, with 522 firm-year observations. The results of multiple regression analysis show that there is a positive relationship between the interaction of free cash flow and managerial entrenchment and financial performance. These results highlight the importance of assurances of stewardship theory that it is not necessary to present managerial entrenchment as it is against the interests of stockholders and the effectiveness of organizations. Entrenchment could be useful if it is able to create value for the company which reflects positively on the wealth of its stockholders.

Does ownership concentration matter for the relationship between CEO characteristics and real earnings management: evidence from Jordan

PurposeThe current research inspects the moderation role of ownership concentration on chief executive officer (CEO) characteristics and real earnings management (REM) relationship in Jordan.Design/methodology/approachDriscoll–Kraay regressions were run using data from 348 firm-year observations for companies listed on the Amman Stock Exchange between 2013 and 2018.FindingsDriscoll–Kraay regressions demonstrate that CEO experience, tenure and political connections improve REM practices. Ownership concentration diminishes and limits REM practices when combined with CEO experience, tenure and political connections, since all three have a negative and significant link with REM.Research limitations/implicationsInitial constraints include the study’s lack of generalisability due to a small number of CEO-related parameters. Second, critics of the ideal model for judging EM have a foreseeable flaw. No generally accepted model is perfect.Practical implicationsThis study’s conclusions are crucial for industry participants, including companies, policymakers, investors and the general public. These findings will help investors, practitioners and regulators understand that businesses with significant ownership concentrations and experienced CEOs have superior earnings and low REM practises.Social implicationsThe findings of this study have an optimistic impact on the existing body of knowledge. The current literature has yet to properly inspect the moderation role that ownership concentration has on the connotation between CEO characteristics and EM.Originality/valueDespite several research studies in both developed and developing nations, ownership concentration has been almost virtually neglected. The current study could fill a hole in earlier research, rendering it a novel study.

Does hometown connection between chairmen and CEOs improve compensation–performance sensitivity in China?

Based on a the micro dataset set of private Chinese-listed companies, this study examines the in detail the impact of hometown connections between chief executive officers (CEOs) and chairmen on CEO compensation–performance sensitivity. The empirical results suggest that a hometown connection prompts both the chairman and the CEO to pay more attention to their reputations, which improves CEO compensation–performance sensitivity. This hometown effect is more pronounced when the hometown culture is strong and the degree of marketization is high. The mechanism test reveals that an externally hierd CEO strengthens the influence of a hometown connection on CEO compensation–performance sensitivity, however, this influence weakens with increasing CEO tenure. Overall, this study enriches the literature on informal institutions and compensation contracts and provides valuable insights for company managers and policymakers in emerging markets.

Do powerful CEOs matter for earnings quality? Evidence from Bangladesh.

This study investigates the effects of powerful Chief Executive Officers (CEOs) on earnings quality in a setting where CEOs have strong dominance over other top executives and occasionally attempt to exert their influence over corporate regulatory bodies. Using 10-year longitudinal data for the period from 2010 to 2019 and 1,395 firm-year observations from listed non-financial firms in Bangladesh, we found that CEOs' political power and CEOs with high structural and expert power have a significant detrimental effect on earnings quality. Ownership and prestige power have an insignificant impact on earnings quality. These powerful CEOs use accrual and real activity manipulation techniques together to manage the earnings. This study uses the system-generalized method of moment estimates for estimation purposes, and the results remain robust when alternative earnings quality proxies are used. Taken together, our results suggest that CEOs' political duality (i.e., serving simultaneously as a member of parliament and a CEO) should be restricted and that a CEO's tenure should be limited to a reasonable period. This research adds to the existing body of knowledge by offering empirical support for CEO power dynamics on earnings quality, specifically political and prestige power.

CEO Succession Roulette

Despite intense scrutiny from investors, markets, and regulators, many public companies have no formal succession plans. Anecdotal evidence links succession risk to significant value destruction, but there is limited academic research evaluating the effects of succession planning on chief executive officer (CEO) turnover outcomes. We provide evidence that succession planning reduces the cost of management transitions by improving their efficiency. Firms with succession plans experience not only lower uncertainty around turnover events but also a faster reduction in uncertainty over the incoming CEO’s tenure, consistent with faster learning about CEO-firm fit. Succession planning also raises the quality of the CEO-firm match, as evidenced by longer CEO tenure, and improves the board’s readiness to replace an underperforming CEO, increasing turnover performance sensitivity. This paper was accepted by Suraj Srinivasan, accounting. Supplemental Material: The data are available at https://doi.org/10.1287/mnsc.2022.4572 .

CSR disclosure and debt financing in India: does CEO tenure matter?

PurposeThe study aims to examine whether corporate social responsibility (CSR) disclosure does improve debt financing of listed firms with sustainable development agendas coupled with high chief executive officer (CEO) tenure in India.Design/methodology/approachEmploying panel regression based on fixed effect and instrumental variable regression with fixed effect assumptions, the study examined data from the Bombay stock exchange from the period 2010 to 2019.FindingsThe study demonstrates that the disclosure of current exchange capital and moral capital cannot cause a firm to access short-term and long-term debt financing. However, lag investment in moral capital causes a positive effect on short-term debt financing. The second findings show that CEO tenure has a positive and statistically significant association with short-term debt financing and an insignificant association with long-term debt financing. The third findings show that the interaction of current CSR disclosure (moral and exchange capital) and CEO tenure is insignificant in affecting short-term and long-term debt finance. However, the interaction of lag CSR disclosure (moral and exchange capital) and CEO tenure positively affect short-term debt financing. The study addresses any endogeneity concerns arising from the CSR disclosure-debt financing association.Research limitations/implicationsThis study uses a single country to examine the inter-relationship between CEO tenure and debt financing and CSR measured by moral capital and exchange capital, thereby limiting the study's results for generalisation.Practical implicationsThe observation is that moral capital investment and disclosure do not guarantee new entrants the chance to access debt financing, but subsequent and lag CSR disclosure ensures access.Originality/valueNo studies examine morality from CSR disclosure on debt financing. This study shows that decoupling CSR into exchange capital and moral capital in accessing debt financing presents new inputs for scholarly debate on CSR.