Chief Financial Officer Turnover, Sarbanes–Oxley, and Market Reactions

We argue that forced CFO turnover has a complex relation with SOX reports of internal control problems. Sometimes forced turnover precedes an adverse SOX report whereas, in other cases, forced turnover follows the unfavorable SOX opinion. Further, financial markets are aware of this complex relation...

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Bibliographic Details
Published in:Review of Pacific basin financial markets and policies 2023-03, Vol.26 (1)
Main Authors: Parker, Robert J., Yan, Yun-Chia, Dao, Mai, Manry, David
Format: Article
Language:English
Subjects:
Chief financial officers
Employee turnover
Internal controls
Public Company Accounting Reform & Investor Protection Act 2002-US
Resignations
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Summary:We argue that forced CFO turnover has a complex relation with SOX reports of internal control problems. Sometimes forced turnover precedes an adverse SOX report whereas, in other cases, forced turnover follows the unfavorable SOX opinion. Further, financial markets are aware of this complex relation. Using a large sample collected over eight years, we find evidence to support our arguments. Regarding market reactions, we find that upon the announcement of CFO turnover, cumulative abnormal returns (CAR) are negative and significant for forced resignations. This reaction is mitigated if an unfavorable SOX opinion had been issued for the prior year. We also find that negative market reactions to adverse SOX reports are attenuated, in part, by whether the company previously forced the CFO to leave.
ISSN:0219-0915
1793-6705
DOI:10.1142/S0219091523500042