Accounting Irregularities and Executive Turnover in Founder-Managed Firms
41 Pages Posted: 18 Nov 2008
Date Written: November 16, 2008
This study tests the hypothesis that founder CEOs are less likely to be fired than non-founder CEOs when accounting irregularities are disclosed. We also examine whether CFOs are more likely to shoulder the blame when the CEO is a founder. Using a sample of ninety newly public firms with accounting irregularities, and a control sample of similar newly public firms, we document that the probability of CEO (CFO) turnover in the wake of an accounting irregularity is lower (higher) when the firm's CEO is also a founder. The difference in CEO turnover rates is dramatic, with non-founder CEOs turning over at a rate of 51% compared to only 26% for founder CEOs. Our overall findings are consistent with the notion that founder CEOs are entrenched.
Keywords: Entrenchment, Turnover, Founders, Restatements, IPO
JEL Classification: G32, G14
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