ABSTRACT
This study investigates how timely recognition of economic losses (TLR) in accounting reports influences the weights assigned to accounting earnings and market returns in a firm's CEO turnover decisions in an international context. Empirical results from a sample of firms from 37 countries show that as TLR increases, CEO turnover becomes more sensitive to both earnings and market returns. Our results are aligned with the view that TLR improves the board's ability to use both accounting- and market-performance information effectively when evaluating CEO performance and making CEO replacement decisions. Our results also show that TLR's effect on enhancing the board's ability to glean performance information from stock prices and to make an informed decision to replace a CEO is more pronounced in countries with low corporate financial transparency and/or high governance transparency. Our results are robust to a variety of sensitivity tests.
