CFO Succession and Corporate Financial Practices
University of Chicago Booth School of Business
University of Illinois at Chicago
Ohio State University - Fisher College of Business
October 1, 2013
We examine the determinants and financial performance consequences of Chief Financial Officer (CFO) successions. We argue that if internal monitoring mechanisms are effective, there should be a greater probability of forced CFO departures in firms with poor financial reporting and capital management performance, and resulting improvements in financial practices following forced turnovers. We test these hypotheses over the period 2002 to 2008. We find that (1) the incidences of accounting restatements and debt covenant violations are significantly associated with the probability of forced CFO turnovers; (2) firms are more likely to hire successor CFOs from outside the firm following accounting restatements, especially those due to irregularities; (3) the hiring of outside CFOs is associated with improved financial reporting quality. Further, these findings are concentrated in firms with majority independent boards, suggesting that outside directors play a greater role in monitoring CFOs than inside board members.
Number of Pages in PDF File: 42
Keywords: CFO succession, CFO turnover, Board of director monitoringworking papers series
Date posted: October 23, 2013
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