Purpose – This paper aims to examine whether restatement firms with certain restatement characteristics are more likely to have chief executive officer (CEO) turnover within a year of the restatement announcement, and whether these same firms are later subject to regulatory action by the US Securities and Exchange Commission. Design/methodology/approach – The empirical analysis uses a logistic regression to test a sample of firms that restated earnings during the years 1996‐1999. Findings – The results show significant associations between measures of the severity of earnings restatement and the probability of CEO turnover. Also, restatement firms with CEO turnover are more likely to be issued an SEC Accounting and Auditing Enforcement Release in the years after the restatement, indicating that financial fraud has occurred. Research limitations/implications – The results may not generalize to a more recent time period because the sample of firms is from the 1996‐1999 time period. Originality/value – This study provides a link between CEO turnover and restatement characteristics within a sample of restatement firms.
Pacific Accounting Review – Emerald Publishing
Published: Nov 23, 2010
Keywords: Earnings; Chief executives; Employee turnover; Financial reporting; Fraud; United States of America