EARNINGS MANAGEMENT AND NONROUTINE EXECUTIVE CHANGES

This paper examines evidence of earnings management associated with nonroutine executive changes. The empirical evidence is consistent with the hypothesis that incoming executives manage accruals in a way that decreases earnings in the year of the executive change and increases earnings the following year. Further, incoming executives record large write-offs and special items the year of the management change. Contrary to expectation, departing executives record accruals and write-offs that decrease earnings during their last year of tenure. Several possible reasons for this result are suggested.