Municipal Accounting Restatements and Top Financial Manager Turnover

Abstract

We investigate whether municipal financial managers face labor market consequences following accounting restatements. The evidence suggests that municipalities that disclose accounting restatements are more likely to experience turnover in the top financial manager position than a control sample of non-restatement municipalities. Overall, our findings are consistent with citizens and/or municipal leaders understanding the adverse consequences associated with accounting failures, and taking corrective action following their disclosure by imposing consequences on those overseeing financial reports that require restatement.

Keywords: restatement, executive turnover, financial oversight, municipal accounting