Earnings management by ordinary and interim CEOs in Nordic countries

Abstract: Earnings management theory predicts that incoming CEOs manipulate earnings in association with succession processes. Using data on 311 CEO changes in 217 listed firms in four Nordic countries, we examine this relationship with econometric methods, distinguishing between ordinary and interim CEOs. First, we find significant evidence for that firms on average manage earnings by 6.0% of total assets per year. Second, we present evidence indicating that incoming ordinary CEOs engage in income decreasing earnings management in the year of the change, to a magnitude of 1.5% of total assets. Third, we fail to find support in our data for that incoming ordinary CEOs manage earnings upward in the year following the transition year. Finally, we are also unsuccessful in providing evidence for the hypothesis that incoming interim CEOs engage in income increasing earnings management in the transition year.