This paper examines the role of the financial reporting environment in selecting a new CEO from within versus outside the organization. Weak reporting controls allow the CEO to misreport performance information, which reduces the board's ability to detect and replace poorly-performing CEOs as well as aggravates incentive contracting. We show that these adverse effects are stronger when the CEO is an outsider rather than an insider. Our model predicts that boards are more likely to recruit a CEO from the outside when the performance measures with which the new hire is assessed are harder to manipulate.
Insider versus outsider CEOs, CEO compensation, CEO turnover, Accounting manipulation
Accounting | Corporate Finance
Corporate Reporting and Disclosure
Journal of Accounting and Economics
Elsevier: 24 months
JONGJAROENKAMOL, Prasart and LAUX, Volker.
Insider versus outsider CEOs, executive compensation, and accounting manipulation. (2017). Journal of Accounting and Economics. 63, (2-3), 253-261. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1620
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