Can Management Turnovers Following Financial Restatements Prevent Another Restatement?

What is it about?

This research examines whether management turnovers following financial restatements reduce the probability of subsequent restatements. We find that restating firms that replace CEO and/or CFO are more likely to restate their financial statements again, compared to restating firms without management turnovers. Importantly, we show that the subsequent restatements are mainly attributable to the new management.

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Photo by Ross Findon on Unsplash

Photo by Ross Findon on Unsplash

Why is it important?

While it is common for firms to replace their CEO and/or CFO following financial restatements, our research shows that management turnover is not an effective way to prevent another restatement. Rather, our research suggests that management turnovers lead to organizational instability and higher accounting information risk. Our findings have implications for internal decision-making with regard to top executive replacement.

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