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The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries: The role of investor protection

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  • Hu, Jinshuai
  • Kim, Jeong-Bon

Abstract

This study investigates the role of investor protection in determining the relative usefulness of cash flows versus accrual earnings for assessing Chief Executive Officer (CEO) performance and replacing poorly performing CEOs. Using a large sample of listed firms from 41 countries, we find that as the strength of investor protection decreases, the likelihood of CEO turnover becomes more sensitive to cash flow performance but less sensitive to accrual earnings. Further analysis shows that the availability of analysts’ cash flow forecasts enhances the sensitivity of CEO turnover to cash flows, and this sensitivity is more pronounced in countries with weaker investor protection. Collectively, our results suggest that cash flow information plays a more vital role than accrual earnings in facilitating efficient contracting between corporate boards and CEOs in an environment with poor protection of investor rights.

Suggested Citation

  • Hu, Jinshuai & Kim, Jeong-Bon, 2019. "The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries: The role of investor protection," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 34(C), pages 91-107.
    • Handle: RePEc:eee:jiaata:v:34:y:2019:i:c:p:91-107
    DOI: 10.1016/j.intaccaudtax.2019.02.005
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    More about this item

    Keywords

    Cash flow; Investor protection; Contractual usefulness; CEO turnover; International accounting;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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