We examine the association between the origin of chief executive officer (CEO) succession (i.e., promoting a CEO from within the firm as opposed to recruiting from outside) and annual reports readability. Based on a sample of large U.S. companies during the period 2004–2020, we predict and find that companies with insider CEOs issue more readable 10-K reports compared to those who hire from outside. This positive association between insider CEOs and readability is less pronounced for insider CEOs who wield greater power. We further document that the association is stronger if CEOs have a financial background. To further explore the underlying mechanism, we test whether the association is driven by earnings management or firms’ business strategies. Our results show that the effect of CEO succession origin on readability is primarily attributable to business strategies. We address endogeneity issues and check the robustness of our results in several ways. Finally, we document important policy implications emerging from our study.

中文翻译：

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CEO继任者起源和年度报告的可读性

我们研究了首席执行官 (CEO) 继任的起源（即从公司内部提拔 CEO，而不是从外部招聘）与年度报告的可读性之间的关联。根据 2004 年至 2020 年期间美国大型公司的样本，我们预测并发现，与外部聘用首席执行官的公司相比，拥有内部 CEO 的公司会发布更具可读性的 10-K 报告。对于掌握更大权力的内部首席执行官来说，内部首席执行官与可读性之间的这种正相关关系不太明显。我们进一步证明，如果首席执行官具有财务背景，这种关联就会更强大。为了进一步探讨其潜在机制，我们测试了这种关联是由盈余管理还是公司的业务战略驱动的。我们的结果表明，CEO 继任起源对可读性的影响主要归因于业务策略。我们解决内生性问题并通过多种方式检查我们结果的稳健性。最后，我们记录了我们研究中出现的重要政策影响。