Comment Letter Frequency and CFO Turnover: A Dynamic Survival Analysis

Abstract

Earlier research on CFO turnover considered whether one off detailed regulatory findings, such as restatements, affected the likelihood of CFO turnover. However, since the passing of SOX, the SEC has revised the regulatory approach it uses. It now investigates companies on a more frequent basis and using Comment Letters regularly asks registrants to explain disclosure practice with a view to possibly requiring enhanced or revised disclosures. In this new proactive environment some registrants may repeatedly receive Comment Letters asking questions about multiple disclosure issues. This research uses a dynamic hazard model specification to investigate whether through time CFO turnover increases as the registrants accumulate more Comment Letters. In addition to Comment Letter frequency, a measure of the severity of SEC Comment Letters is introduced to see if it moderates the effect of frequency.

Keywords: Multiple Comment Letters; SEC regulation

JEL Classification: J41, G18