HOW FIRMS RESPOND TO FINANCIAL RESTATEMENT: CEO SUCCESSORS AND EXTERNAL REACTIONS

Although past studies have paid considerable attention to firms' reputations, few have investigated the actions that firms take following a reputation-damaging event. We identify firms involved in financial earnings restatements and examine whether naming a successor CEO with specific qualities...

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Bibliographic Details
Published in:Academy of Management journal 2014-12, Vol.57 (6), p.1759-1785
Main Authors: GOMULYA, DAVID, BOEKER, WARREN
Format: Article
Language:English
Subjects:
Analytical forecasting
Business management
Chief executive officers
Earnings forecasting
Education
Finance
Financial accounting
Financial restatements
Forecasting models
Journalism
Management theory
Media
Organizational behaviour
Planning methods
Public image management
Reputation management
Signalling
Stakeholder
Standard deviation
Studies
Succession planning
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Summary:Although past studies have paid considerable attention to firms' reputations, few have investigated the actions that firms take following a reputation-damaging event. We identify firms involved in financial earnings restatements and examine whether naming a successor CEO with specific qualities serves to signal the seriousness of a firm's efforts to restore its reputation. Using theories of market signaling, we argue that attributes of successor CEOs significantly influence the reactions of key external constituencies. In particular, firms with more severe restatement tend to name successors who have prior CEO or turnaround experience and a more elite education. The naming of such successors results in more positive reactions from the stock market, financial analysts, and mass media. We argue that these attributes send messages to stakeholders and the broader public about the CEO's credibility and the firm's efforts.
ISSN:0001-4273
1948-0989
DOI:10.5465/amj.2012.0491