| Top executives turnover often occurs in Chinese listed companies and it brings a series of chain reactions, for example personnel turnover, strategic adjustment, stock price volatility and so on. As a part of decisions made by top managers, earnings management is a choice made by executives after the trade-off between pros and cons. The effect of executives turnover to earnings management has always been a hot issue for scholars. As the core leader of top management team, CEO plays a vital role in setting out major decisions. Those existed research mainly focuses on the influence of CEO turnover to discretionary accruals, while there are less literatures about CEO turnover and real manipulation. Moreover, people often focuses on the prophase of CEO turnover when discussing the impact of CEO turnover type to earnings management.Based on the background above-mentioned, this paper selects companies listed on Shanghai and Shenzhen stock markets from 2008 to 2014 and the sample size is 11114. This research uses OLS regression method to analyze the effect of current period and following period of CEO turnover to accrual-based earnings management and real earnings management separately. Then, this article selects companies which occur CEO turnover event and divides CEO turnover into two types, namely unusual and usual,2437 firm-year observations in total. The empirical results reveal that for considering one's own development benefits and performance-based compensation, new CEO manages discretionary accruals downward significantly in the year of turnover and manages discretionary accruals upward significantly in the following two years. However, the successor does not manipulate real activities in the year of turnover but manages real earnings upward significantly in the following two years. Moreover, under the circumstance of unusual turnover, the successor will manage discretionary accruals downward significantly in the year of turnover but will not use real activities significantly due to its difficulty.Aiming at the conclusions above, this paper puts forward several recommendations which are beneficial to capital market construction. On one hand, CSRC(China Securities Regulatory Commission) must require those listed companies which have replaced CEO to disclose earnings information in detail and to make reasonable explanation to abnormal earnings level. On the other hand, listed companies should reinforce internal control themselves, maintain the stability of top executives team, pay attention to successors' psychological features properly, cultivate long-term cooperation with successors, encourage CEO enhance their status by increasing firm value and meet their self-realization demand by designing proper incentives. |
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