Sunday, March 18, 2007
Corporate Governance Consequences of Accounting Scandals: Evidence from Top Management, CFO and Auditor Turnover by ANUP AGRAWAL University of Alabama - Culverhouse College of Commerce & Business Administration and TOMMY COOPER University of Alabama - Culverhouse College of Commerce & Business Administration, is now on SSRN. Here is the abstract:
This paper examines the consequences of accounting scandals to top management, top financial officers, and outside auditors. We examine a sample of 518 U.S. public companies that announced earnings-decreasing restatements during the 1997-2002 time period and an industry-size matched sample of control firms. Using logistic regressions that control for other determinants of management turnover, we find strong evidence of greater turnover for CEOs, top management and CFOs of restating firms compared to the control sample. The magnitudes of these effects are even larger for restatements that are more serious, that have worse effects on stock prices, or that result in negative restated earnings. We find no consistent evidence that auditor turnover is higher for restating firms. Our paper provides evidence of efficient functioning of internal corporate governance mechanisms following a corporate disaster, and complements the literature on motives and causes of such disasters.