CEO turnover and earnings management in eponymous firms

This paper examines earnings management by new CEOs in eponymous firms, i.e., firms named after the founding family. Since bad press for the firm may have detrimental consequences for the family as well, eponymous firms face greater reputational risk and costs. We hypothesize that new CEOs consider this issue in their decisions, which notably leads them to manage earnings less in eponymous firms than in non-eponymous firms. Our empirical analysis, based on a sample of CEO changes in French publicly listed firms, supports our hypothesis of less earnings management by new CEOs in eponymous firms. These results are driven by a lower propensity to manage earnings upward. The findings hold when addressing endogeneity concerns, using an alternative earnings management measure, and focusing on a subsample of firms with family blockholders only. Finally, we document similar results on a sample of CFO changes. Overall, we conclude that reputational concerns influence new CEOs’ decisions in eponymous firms