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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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.

Perspectives

It is interesting and meaningful to follow up whether management turnovers in restating firms really help restore financial reporting quality. Our research suggests that: No, management turnovers following financial restatements make it even worse!

Ting-Chiao Huang
Monash University

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This page is a summary of: Can Management Turnover Restore the Financial Statement Credibility of Restating Firms? Further Evidence, Journal of Business Finance &amp Accounting, September 2014, Wiley, DOI: 10.1111/jbfa.12081.
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