Management Accounting Section Midyear Meeting

Concavity of Firm Performance Along CEO Tenure

• In Event: Executives and Supervisors (Mixed Methods)

Abstract

Mixed empirical evidence on the pattern of firm performance along CEO tenure has attracted attention in both strategy and accounting disciplines. Using accounting earnings as a performance measure, we document a concave, inverted U shape pattern of earnings along CEO tenure for a large sample of S&P 1500 firms. The concavity is intensified by earnings management, particularly in the early years of the CEO tenure. The magnitude of the annual increase prior to the peak year and the subsequent annual decrease are economically meaningful. The results contribute by confirming an inverted U shape pattern of firm performance along CEO tenure as predicted by theories in the strategy literature. Moreover, the study extends the earnings management literature by demonstrating the impact of reporting choices made to manage earnings on the pattern of reported earnings along CEO tenure.

Authors

• Lior Adam, Tel-Aviv University

• Dan Weiss, Tel Aviv University