The impact of CEO Turnover on Earning Management Practices: An Empirical Study in Industrial and Service Companies listed on Amman Stock Exchange

Abstract

This purpose of this study is to explain the impact of CEO turnover on earnings management practices. CEO turnover was measured using four metrics (CEOs during their tenure, departing CEOs in the year preceding their replacement, new CEOs in their first year of service, and CEOs during the early stages of their tenure). The modified Jones model was used to investigate the impact on earnings management. Furthermore, the study examined the moderating role of board independence in determining the impact of CEO turnover on earnings management in a sample comprising 35 industrial and 28 service-related publicly listed Jordanian companies for the period 2011–2021. To assess the study's hypotheses, the appropriate statistical tests were conducted using the STATA software.

The results showed that there is no significant impact of CEOs during their tenure, new CEOs in their first year of service, or CEOs during the early stages of their tenure on earnings management. Furthermore, the independence of the board did not mitigate the effect of CEOs during their tenure or departing CEOs in the year preceding their replacement on earnings management. However, it did moderate the effect of departing CEOs in the year preceding their replacement on earnings management and had an effect on mitigating the impact of CEOs in their first year of service on earnings management.

Keywords: CEO turnover, board independence, earnings management, Jordanian industrial and service public companies