Going-Concern Opinions, Corporate Control, Executive Compensation and Management Turnover

Posted: 1 Feb 2014 Last revised: 31 Jan 2018

See all articles by Bill Francis

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology

Ning Ren

Rensselaer Polytechnic Institute; Long Island University Post

Yinghong Zhang

University of Central Oklahoma

Yun Zhu

St. John's University - Department of Economics and Finance

Date Written: September 2, 2013

Abstract

We investigate economic consequences of going-concern opinions in terms of corporate control, executive compensation and management turnover. We argue that announcement of going-concern opinions either decreases firm value or signals negatively to investors. Therefore, upon the announcement of these opinions, companies are motivated to go through organizational changes to strengthen monitoring and restore investors’ confidence. These organizational changes include modifications in corporate ownership, executive compensation and management turnover. Based on a sample period of 1995 – 2012 and using a difference-in-difference approach, we find that the existence of going-concern opinions results in decreases in ownerships of blockholders and institutional investors. In addition, the presence of these opinions decreases CEO compensation and increases subsequent turnovers of top managers and auditors. Our findings point out other adverse consequences of going-concern opinions besides declines in market value. Thus going-concern opinions might be useful for outside stakeholders to predict future organizational changes within companies.

Keywords: going-concern opinion; blockholder; institutional investor; executive compensation; management turnover

JEL Classification: M4

Suggested Citation

Francis, Bill and Ren, Ning and Ren, Ning and Zhang, Yinghong and Zhu, Yun, Going-Concern Opinions, Corporate Control, Executive Compensation and Management Turnover (September 2, 2013). Available at SSRN: https://ssrn.com/abstract=2382600

Bill Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management & Technology ( email )

110 8th St
Troy, NY 12180
United States

Ning Ren

Rensselaer Polytechnic Institute ( email )

United States
5852819777 (Phone)

Long Island University Post ( email )

720 Northern Boulevard
Brookville, 11548-1327
United States
5162992095 (Phone)

Yinghong Zhang (Contact Author)

University of Central Oklahoma ( email )

100 North University Drive
Edmond, OK 73034
United States

Yun Zhu

St. John's University - Department of Economics and Finance ( email )

Jamaica, NY 11439
United States

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