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Mandatory IFRS Adoption and the Role of Accounting Earnings in CEO Turnover

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  • Joanna Shuang Wu
  • Ivy Xiying Zhang

Abstract

We study whether mandatory adoption of International Financial Reporting Standards (IFRS) is associated with changes in the sensitivity of CEO turnover to accounting earnings and how the impact of IFRS adoption varies with country‐level institutions and firm‐level incentives. We find that CEO turnover responds more to a firm's accounting performance after adoption. This increase in turnover‐to‐earnings sensitivity is concentrated in countries with stronger enforcement of financial reporting and is more prominent for mandatory adopters that have strong firm‐level compliance incentives. In addition, we link the change in turnover‐to‐earnings sensitivity directly to accounting changes due to IFRS adoption and find a stronger adoption effect when firms report large overall accounting changes and large de‐recognition of loss provisions upon adoption. Some of the above findings are sensitive to the exclusion of UK firms, which account for more than half of our sample. Adoption obligatoire des IFRS et rôle des résultats comptables dans la rotation des chefs de la direction Les auteures se demandent si l'adoption obligatoire des normes internationales d'information financière (IFRS) est associée à des changements dans la sensibilité de la rotation des chefs de la direction aux résultats comptables (sensibilité rotation‐résultats) et comment l'incidence de l'adoption des IFRS varie selon les institutions, à l’échelle du pays, et les motivations, à l’échelle de l'entreprise. Elles constatent que la rotation des chefs de la direction est davantage influencée par la performance comptable de l'entreprise après l'adoption. Cette augmentation de la sensibilité rotation‐résultats se concentre dans les pays où l'application des principes d'information financière est plus rigoureuse, et elle est plus marquée chez les adoptants obligés ayant de fortes motivations à la conformité, à l’échelle de l'entreprise. De plus, les auteures relient directement les changements dans la sensibilité rotation‐résultats aux changements comptables découlant de l'adoption des IFRS; elles notent également que les répercussions de l'adoption sont plus importantes lorsque les entreprises font globalement état d'amples changements comptables et d'opérations substantielles de décomptabilisation des provisions pour perte au moment de l'adoption. Certaines de ces constatations sont sensibles à l'exclusion des sociétés du Royaume‐Uni, qui constituent plus de la moitié de l’échantillon étudié par les auteures.

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  • Joanna Shuang Wu & Ivy Xiying Zhang, 2019. "Mandatory IFRS Adoption and the Role of Accounting Earnings in CEO Turnover," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 168-197, March.
    • Handle: RePEc:wly:coacre:v:36:y:2019:i:1:p:168-197
    DOI: 10.1111/1911-3846.12428
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    2. DeFond, Mark & Hu, Jinshuai & Hung, Mingyi & Li, Siqi, 2020. "The effect of fair value accounting on the performance evaluation role of earnings," Journal of Accounting and Economics, Elsevier, vol. 70(2).

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