Research On The Influence Of External CEO Succession On Corporate Earnings Management

In recent years,there has been frequent senior manager changes in Chinese listed companies.As the center of senior managers,CEO plays a vital role in the formulation of major strategic decisions and cultural construction of the enterprise.As a major decision of the enterprise,the succession of CEO is also a major change of the personnel of the company,which will affect the performance of the enterprise and even bring a large shock to the company’s stock price.Accounting earnings can reflect the operating conditions of enterprises to a certain extent,while managers’ earnings management behavior will whitewash financial statements,mislead investors,and make it difficult for investors to make correct decisions.In the modern corporate system,most new CEOs are promoted or transferred by the company’s internal top managers,but now more and more companies are also replacing CEO through external appointment.Discussion of CEO behavior is largely based on the rational person assumption that they will do anything to maximize their own interests,such as earnings management,and succeeding CEOs are no exception.It is of great significance to study the influence of CEO succession,especially external CEO succession,on earnings management behavior.At the same time,domestic and foreign scholars also studied the role of earnings management from the perspective of corporate governance and internal control quality.Effective corporate governance and internal control can alleviate the information asymmetry caused by the principal-agent and often inhibit earnings management to a certain extent.In view of this,from the perspective of corporate governance and internal control,this thesis explores the moderating role of external CEO succession and earnings management.This thesis uses the sample data of China’s A-share listed companies from 2011 to 2021 to study whether the external successor CEO will bring positive earnings management to the enterprise in the year of the inauguration.On this basis,it also discusses whether effective corporate governance and internal control can restrain the earnings management behavior of external successor CEO,and then subdivides the types of successor CEO.From the perspective of whether the successor CEO is interim CEO or not and its geographical relationship,the different influences on earnings management are studied.The results show that there is a significant positive correlation between the positive accrual earnings management and the positive real earnings management of the company,indicating that the external successor CEO will adopt two earnings management methods to manipulate earnings and improve corporate profits in the succession year.Effective corporate governance and internal control can indeed inhibit earnings management behavior of external successors.In the further study,it is more difficult for managers appointed as interim CEOs from outside to conduct earnings management.Compared with interim CEOs,formal CEOs have more advantages in terms of discourse power,so it is easier to adjust the transaction activities or accounting policies of enterprises to conduct earnings management.The existence of geographical ties can effectively inhibit the earnings management inclination of the succeeding CEO.The research in this thesis enriched the research on CEO succession and earnings management,and provided some references for further improving the internal supervision system and the selection of CEO succession from a more detailed and comprehensive perspective.According to the empirical results of this thesis,the following policy suggestions are put forward:China Securities Regulatory Commission should strictly check the authenticity of the earnings information of listed companies and strengthen the supervision of listed companies.For the companies with external CEO succession in the current year,China Securities Regulatory Commission should take them as the focus of supervision and require listed companies to disclose more detailed accounting earnings information;Listed companies should also strengthen their own internal control,enhance the effectiveness of corporate governance and internal control,and curb earnings management behavior from the source of the enterprise.When selecting the successor CEO,the quality of the successor CEO should be comprehensively investigated,and the background characteristics of the successor CEO should be considered.