CEO turnover and properties of accounting information

CEO turnover and properties of accounting information Multiple-performance-measure agency models predict that optimal contracts should place greater reliance on performance measures that are more precise and more sensitive to the agent's effort. We apply these predictions to CEO retention decisions. First, we develop an agency model to motivate proxies for signal and noise in firm-level performance measures. We then document that accounting information appears to receive greater weight in turnover decisions when accounting-based measures are more precise and more sensitive. We also present evidence suggesting that market-based performance measures receive less weight in turnover decisions when accounting-based measures are more sensitive or market returns are more variable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

CEO turnover and properties of accounting information

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Publisher
Elsevier
Copyright
Copyright © 2003 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2003.08.001
Publisher site
See Article on Publisher Site

Abstract

Multiple-performance-measure agency models predict that optimal contracts should place greater reliance on performance measures that are more precise and more sensitive to the agent's effort. We apply these predictions to CEO retention decisions. First, we develop an agency model to motivate proxies for signal and noise in firm-level performance measures. We then document that accounting information appears to receive greater weight in turnover decisions when accounting-based measures are more precise and more sensitive. We also present evidence suggesting that market-based performance measures receive less weight in turnover decisions when accounting-based measures are more sensitive or market returns are more variable.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 2003

References

  • Compensation and incentives
    Baker, G.P.; Jensen, M.C.; Murphy, K.J.
  • The conservatism principle and the asymmetric timeliness of earnings
    Basu, S.
  • The effect of competition on CEO turnover
    Defond, M.L.; Park, C.W.
  • Contracting theory and accounting
    Lambert, R.A.
  • Performance standards in incentive contracts
    Murphy, K.J.

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