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Insider versus outsider CEOs, executive compensation, and accounting manipulation

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  • Jongjaroenkamol, Prasart
  • Laux, Volker

Abstract

This paper examines the role of the financial reporting environment in selecting a new CEO from within versus outside the organization. Weak reporting controls allow the CEO to misreport performance information, which reduces the board's ability to detect and replace poorly-performing CEOs as well as aggravates incentive contracting. We show that these adverse effects are stronger when the CEO is an outsider rather than an insider. Our model predicts that boards are more likely to recruit a CEO from the outside when the performance measures with which the new hire is assessed are harder to manipulate.

Suggested Citation

  • Jongjaroenkamol, Prasart & Laux, Volker, 2017. "Insider versus outsider CEOs, executive compensation, and accounting manipulation," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 253-261.
    • Handle: RePEc:eee:jaecon:v:63:y:2017:i:2:p:253-261
    DOI: 10.1016/j.jacceco.2017.01.002
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    References listed on IDEAS

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    Cited by:

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    2. Yu, Nannan & Dong, Yueyan & de Jong, Martin & Yue, Jinxing, 2024. "How do new university presidents affect research performance? Measuring the impact of pervious career paths in China," Research Policy, Elsevier, vol. 53(2).
    3. Guo, Xiaohu & Gupta, Vishal K. & Jackson, William E. & Mortal, Sandra C., 2021. "Is there a racial gap in CEO compensation?," Journal of Corporate Finance, Elsevier, vol. 69(C).
    4. Eric W. Chan & Jeremy B. Lill & Victor S. Maas, 2023. "Promote Internally or Hire Externally? The Role of Gift Exchange and Performance Measurement Precision," Journal of Accounting Research, Wiley Blackwell, vol. 61(2), pages 493-530, May.
    5. Haque, Md Reiazul & Choi, Bobae & Lee, Doowon & Wright, Sue, 2022. "Insider vs. outsider CEO and firm performance: Evidence from the Covid-19 pandemic," Finance Research Letters, Elsevier, vol. 47(PA).
    6. Stefan Schmid & Sebastian Baldermann, 2021. "CEOs’ International Work Experience and Compensation," Management International Review, Springer, vol. 61(3), pages 313-364, June.

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