Articlegreen2009

Earnings Restatements, the Sarbanes-Oxley Act, and the Disciplining of Chief Financial Officers

Denton L. Collins · Adi Masli · Austin L. Reitenga · Juan Manuel Sánchez

165 citations0/0 files storedJournal of Accounting Auditing & Finance

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

We investigate involuntary chief financial officer (CFO) turnover following earnings restatements, the labor market penalties imposed on former restatement-firm CFOs, and whether these disciplinary consequences have increased following the passage of the Sarbanes-Oxley Act of 2002 (SOX). Our results suggest that relative to a control group of non-restating firms, firms restating earnings have higher rates of involuntary CFO turnover, and that former restatement-firm CFOs face stiff labor market penalties. We generally find that the passage of SOX has not increased involuntary CFO turnover rates following restatements. However, we find that labor market penalties for former CFOs of restatement firms are more severe in the post-SOX period, suggesting that SOX has increased ex post settling-up costs. Our results suggest that the influence of SOX on the labor market has resulted in CFOs being held more accountable for their actions.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1980Agency Problems and the Theory of the Firm 1965Mergers and the Market for Corporate Control 1988Stock prices and top management changes 1997CEO turnover and outside succession A cross-sectional analysis 2003Determinants of market reactions to restatement announcements 2005Consequences of Financial Reporting Failure for Outside Directors: Evidence from Accounting Restatements and Audit Committee Members 1989Management turnover and financial distress

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2018The Effects and the Mechanisms of Board Gender Diversity: Evidence from Financial Manipulation 2009CFO Fiduciary Responsibilities and Annual Bonus Incentives 2014How Firms Respond to Financial Restatement: CEO Successors and External Reactions 2011Internal Control Material Weaknesses and CFO Compensation*2013Chief Financial Officers as Inside Directors 2010

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