CEO Turnover, Earnings Management, & Family Control

June 3, 2013 Leave a comment

CEO Turnover, Earnings Management, & Family Control

John Manuel Barrios Jr.University of Miami

Daniele Macciocchi LUISS Guido Carli University

May 22, 2013

Abstract: 
The aim of this paper is to study the relation between earnings management and CEO turnover in the context of family firms. Specifically, we investigate whether the probability of the CEO being dismissed increase with the level of earnings management and if this relation is the same in family controlled firms. Using a sample of 221 Italian family and non-family firms between 2006-2010, we find that there is a positive association between earnings management and CEO turnover with non-family firms driving the results. Additionally, we find that in family firms the likelihood of CEO turnover is even lower when a member of the controlling family acts as CEO. Results suggest that family and non-family firms engage in the same level of earnings management, thus supporting the existence of two different corporate governance systems. This study provides empirical support for the understandings of corporate governance mechanisms in retaining and punishing managers’ opportunistic behaviors, and it provides evidence about the different corporate governance systems between family and non-family controlled companies. The issue is relevant because it has never been tackled from an empirical perspective in the family firms’ context, which presents some important peculiarities when compared to other more widely studied corporate governance systems. These results offer insight for policy makers and investors operating in the context of family controlled companies as they point to the diverse effects of corporate governance policies.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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