Do CEOs from financially sound firms exhibit opportunistic behavior prior to voluntary non-routine departure that is not mitigated by vesting stock options

This study looks at chief executive officers (CEOs) who departed from financially sound firm's, to determine if there is a difference between those whose departure is anticipated (control group) and those whose departure is unanticipated (study group) to determine if the study group's CEOs manipulated total accruals prior to their departure and whether this accrual manipulation by the study group is mitigated by the unvested stock options that the study group's CEOs are holding. An unanticipated departure is defined as the departing CEO being less than 64 years of age, giving less than one quarters notice of intent to depart, and in their last term on the board of directors.; The difference in the manipulation of total accruals between the two groups was examined by regressing the total accruals against the independent variables in a modified Kang and Sivaramakrishnan (1995) model as used by Thomas and Zhang (2000) and validated by the results of a modified Jones model. In addition the total accruals were regressed against future cash-flows to determine which group's accruals were more aligned with their future cash-flows. To determine if the unvested stock options mitigated the study groups manipulation of total accruals this study regressed the total accruals against the log value of the unvested stock options that were unexercisable at the time of the last full financial year that CEO had control of the financial statements using both Kang and Sivaramakrishnan (1995) and the modified Jones model.; Because the results were contrary to expectations, this study looked at the accounting choices in the year prior to the CEO's last year that they controlled the financial statements. The results indicate that the study group manipulated accruals upward in the year prior to their last full fiscal year. The study group's CEOs appear unable to continue maintaining their inflated accruals and during their last full year their total accruals were not inflated to the degree of the control groups. The manipulation of accruals by the study group's CEOs does not appear to be mitigated by unvested options.