CEO Financial Experience and Firms’ Earnings Management in M&A: the importance of Experience Specificity

This study investigates the impact of CEOs’ financial experience on firms earnings management around M&A. Adopting theoretical arguments on personal working experience, we hypothesize that CEOs’ general financial experience may not have a significant impact on their decisions to manipulate earnings while specific experience in audit committee functions will put them in an advantageous position to inflate earnings. Our findings, based on the analysis of 545 UK firms that undertook M&A during 2001-2018, are consistent with these hypotheses. Further investigation reveals that CEOs experienced in audit committees are able to manage earnings as they have specific knowledge on how to reduce the committees’ independence. Our study contributes to the current debate on the efficiency of corporate governance mechanisms by highlighting the importance of specificity of CEOs’ experience.