Earnings performance measures and CEO turnover: Street versus GAAP earnings

Henry Jarva; Juha-Pekka Kallunki; Gilad Livne

doi:10.1016/j.jcorpfin.2019.02.005

Earnings performance measures and CEO turnover: Street versus GAAP earnings

Henry Jarva^*
, Juha-Pekka Kallunki
, Gilad Livne

^*Corresponding author for this work

Accounting, Helsinki

Research output: Contribution to journal › Article › Scientific › peer-review

13 Citations (Scopus)

Abstract

Prior research reports that analysts focus on street earnings, which are measures that typically exceed GAAP earnings. Using a sample of CEO turnovers from 1993 to 2016 we show that the likelihood and speed of forced CEO turnover - but not voluntary turnover - are higher when analysts exclude income-decreasing items. The association between exclusions and forced turnovers is particularly pronounced for high magnitude exclusions. We also show that greater street exclusion of income-decreasing items, the lower CEO bonus payouts. We find that boards use audited and more conservative GAAP earnings in evaluating and dismissing CEOs, except in the recent period of 2010–2016.

Original language	English
Peer-reviewed scientific journal	Journal of Corporate Finance
Volume	56
Pages (from-to)	249-266
Number of pages	18
ISSN	0929-1199
DOIs	https://doi.org/10.1016/j.jcorpfin.2019.02.005
Publication status	Published - 06.2019
MoE publication type	A1 Journal article - refereed

Keywords

512 Business and Management
CEO turnover
GAAP earnings
Street earnings
Street exclusions

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title = "Earnings performance measures and CEO turnover: Street versus GAAP earnings",

abstract = "Prior research reports that analysts focus on street earnings, which are measures that typically exceed GAAP earnings. Using a sample of CEO turnovers from 1993 to 2016 we show that the likelihood and speed of forced CEO turnover - but not voluntary turnover - are higher when analysts exclude income-decreasing items. The association between exclusions and forced turnovers is particularly pronounced for high magnitude exclusions. We also show that greater street exclusion of income-decreasing items, the lower CEO bonus payouts. We find that boards use audited and more conservative GAAP earnings in evaluating and dismissing CEOs, except in the recent period of 2010–2016.",

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N2 - Prior research reports that analysts focus on street earnings, which are measures that typically exceed GAAP earnings. Using a sample of CEO turnovers from 1993 to 2016 we show that the likelihood and speed of forced CEO turnover - but not voluntary turnover - are higher when analysts exclude income-decreasing items. The association between exclusions and forced turnovers is particularly pronounced for high magnitude exclusions. We also show that greater street exclusion of income-decreasing items, the lower CEO bonus payouts. We find that boards use audited and more conservative GAAP earnings in evaluating and dismissing CEOs, except in the recent period of 2010–2016.

AB - Prior research reports that analysts focus on street earnings, which are measures that typically exceed GAAP earnings. Using a sample of CEO turnovers from 1993 to 2016 we show that the likelihood and speed of forced CEO turnover - but not voluntary turnover - are higher when analysts exclude income-decreasing items. The association between exclusions and forced turnovers is particularly pronounced for high magnitude exclusions. We also show that greater street exclusion of income-decreasing items, the lower CEO bonus payouts. We find that boards use audited and more conservative GAAP earnings in evaluating and dismissing CEOs, except in the recent period of 2010–2016.

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VL - 56

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JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

ER -

Earnings performance measures and CEO turnover: Street versus GAAP earnings

Abstract

Keywords

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