Earnings management surrounding forced CEO turnover: evidence from the U.S. property-casualty insurance industry

Jiang CHENG*, J. David CUMMINS, Tzuting LIN

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

8 Citations (Scopus)


In this paper, we investigate earnings management surrounding forced CEO turnover for U.S. property-casualty insurance companies with differing organizational forms. We analyze the three principal organizational form types in the industry—publicly-traded stocks, closely-held stocks, and mutuals. We utilize a unique measure of earnings management, the loss reserve error. Multivariate results show that all ownership types over-state earnings during our sample period whether or not forced turnover occurs. Over-statement is highest for publicly-traded stocks, followed by closely-held stocks and mutuals. Organizational form matters in constraining managerial opportunism in the presence of forced turnovers. Incumbent CEOs of publicly-traded stocks manage earnings upward prior to forced turnovers, consistent with the cover-up hypothesis, but this hypothesis is not consistently supported for mutuals or closely-held stocks. The univariate results support the big-bath hypothesis for closely-held stocks, but the multivariate results do not support the big-bath hypothesis for any organizational form. Finally, corporate governance matters—high board independence and large board sizes are associated with less income over-statement.
Original languageEnglish
Pages (from-to)819-847
Number of pages29
JournalReview of Quantitative Finance and Accounting
Issue number3
Early online date9 Aug 2020
Publication statusPublished - Apr 2021

Bibliographical note

Funding Information:
Jiang Cheng gratefully acknowledges the financial support provided by Lingnan University. Tzuting Lin acknowledge the support of the Ministry of Science & Technology, Taiwan under Grant 1012410H002042. Acknowledgements

Publisher Copyright:
© 2020, Springer Science+Business Media, LLC, part of Springer Nature.

Copyright 2021 Elsevier B.V., All rights reserved.


  • CEO turnover
  • Earnings management
  • Ownership structure
  • Property-casualty insurance
  • Reserve error

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