Pre-adjusted CEO Performance Measures: Focusing on the First Year of Externally Recruited or Female CEO Turnover

Abstract

We classify the characteristics of replaced CEO into externally recruited or female CEO. And then, we verifies whether CEO performance measures are pre-adjusted in the first year when externally recruited or female CEO inaugurates. Using CEOs’ short-term annual incentive plan contracts from the ISS Incentive Lab Database, we sample U.S. S&P 500 companies for the period 2011-2014. The main test results of the study are as follows. First, CEO turnover has no effect on the ex-ante adjust ments of CEO performance measures. This test result i mplies that it is di fficult to find an i mpact of CEO replacement on the pre-adjust ment of the CEO performance measures. Second, when the replaced CEO is externally recruited, the firm is more likely to i mplement ex-ante adjust ment of CEO performance measures. Third, when the replaced CEO is female, the company is more likely to i mplement ex-ante adjust ment of CEO performance measures. These second and third test results i mply that the firm is more likely to adjust CEO performance measures in advance when the replaced CEO is externally recruited or female. This study makes the contribution to the previous literature and practice by identi fying the replaced CEO characteristics that influence the ex-ante adjust ment of CEO performance measures. © 2024, Korean Accounting Association. All rights reserved.