This study extends Pourciau (1993) by examining the link between executive succession and the capital market's response to earnings announcements. Two competing predictions are proposed. First, prior studies have shown that executives manage earnings downward in the year of management change and upward the following year. Managed earnings are more noisy than unmanaged earnings. Since there is an inverse relationship between the perceived noise in earnings and the ERC, the study proposes that the ERC will be less in the year of and the year following a management change than in the year prior to the change. / Second, based on the findings of Lang (1991), the study proposes that a management change will increase the uncertainty about a firm's future cash flows. To the extent that earnings reports are used to resolve these uncertainties, the ERC is expected to increase in the year of change. As the firm's earnings series lengthens, however, and more is learned about the firm's new manager, less reliance will be placed on the earnings reports and the ERC is expected to decline. / Drawing upon the findings of Murphy and Zimmerman (1993) (1985), it is also proposed that the financial condition of the firm prior to the management change will determine the direction of the change in the ERC. Firms that were performing above their industry median before the change are expected to have an increase in their ERCs while firms that were performing below their industry median are expected to have a decline in their ERCs. / Based on the findings of Strong and Meyer (1985), the study also proposes that the origin of the incoming executive will have an impact on the magnitude of the change in the ERC. Firms that appoint the new manager from outside are expected to have greater changes in their ERCs than firms that appoint the new manager from inside. / The results indicate that a management change has a significant impact on the ERC of a firm. Management change firms have lower ERCs in the year of change than non-management change firms from the same industry. The results were inconclusive for firms performing below their industry medians prior to the management change. Firms performing above their industry medians prior to the management change have a significant decline in their ERCs in the year of change but the ERCs return to their pre-change values in the following year. Firms that appoint the new manager from outside have greater changes in their ERCs in the year of change than firms that appoint the new manager from inside. / Source: Dissertation Abstracts International, Volume: 55-09, Section: A, page: 2894. / Major Professor: Thomas Schaefer. / Thesis (Ph.D.)--The Florida State University, 1994.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_77260 |
| Contributors | Rose-Green, Ena Patricia., Florida State University |
| Source Sets | Florida State University |
| Language | English |
| Detected Language | English |
| Type | Text |
| Format | 106 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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