Executive Succession and Post-Restructuring Performance Improvement and Financial Reporting Quality
We investigate the impact of CEO turnover in connection with corporate restructurings on subsequent performance improvement and accounting quality. Although operational restructurings are credited with performance improvements, prior studies suggest companies potentially manipulate restructuring charges to mask true economic performance. We document significant improvements in post-restructuring investment efficiency and operating performance with no differentiation between firms that experience pre-restructuring CEO turnovers and those that do not. However, continuing managers are more likely to display opportunistic behavior, suggesting their performance improvements are less consistent with real economic changes than pre-restructuring turnover firms. This difference in accounting quality is also more pronounced for firms with outside replacements. Overall, our findings suggest that the threat of managerial termination can effectively induce managers to undertake appropriate actions and commit to higher reporting quality in poorly performing firms.