Executive Profiling and Firm Resolution
Journal of Accounting and Finance Vol. 15(2) 2015
12 Pages Posted: 29 Oct 2015
Date Written: April 29, 2015
Legislative pressures continue to scrutinize auditors for failing to warn investors of subsequent company failures in their audit report (US. House of Representative 1985, 1990, 2002). Multiple literatures have highlighted auditor’s reporting failures (Weil 2001; Dietz 2002; NASDAQ 2002) to provide a warning to investors. Using a sample of 1,053 firms receiving a Going Concern Modified Opinion (GCM) during the period from 2003 through 2005 fiscal year end, we analyze whether executive turnover and gender are associated with subsequent GCM opinions. The paper extends work done by Mutchler (1986), Chen and Church (1992), Geiger and Raghunandan (2001), Geiger, Raghunandan, and Rama (2005), and Behn, Kaplan, and Krumwiede (2001) by modeling and testing the association between the client subsequent performance and mitigating factors. After controlling for financial condition, size, and leverage, the results of the study indicate that client’s future resolution subsequently after receiving GCM is strongly linked to having a new Chief Executive Officer (NEW_CEO). We posit that having a NEW_CEO is highly associated with subsequent client failure. Auditor’s issuing GCM may need to consider a CEO turnover event as predictable event for client subsequent failure. Furthermore, we find no association between client’s subsequent performance after receiving GCM opinion when the executive is a female (FEM_CEO or FEM_CFO)or a new chief financial officer (NEW_CFO).
Keywords: Going Concern, Gender, Executive Characteristics, audit opinion
JEL Classification: M41
Suggested Citation: Suggested Citation