The Influence of Turnover among Other Top Executives and Local Market Characteristics on Financial Reporting Risk in the Presence of CEO and CFO Continuity

52 Pages Posted: 9 Jan 2021 Last revised: 10 Jul 2022

See all articles by Kenneth L. Bills

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems

Michelle Harding

Virginia Tech

Timothy A. Seidel

Brigham Young University

J. Mike Truelson

Mississippi State University

Date Written: July 2022

Abstract

Prior research suggests that turnover among key executives such as the CEO or CFO can influence stakeholder perceptions of financial reporting risk. In this study, we explore whether greater turnover among the members of a firms’ top executive group other than those with direct financial reporting oversight responsibilities (i.e., the CEO and CFO) influences key stakeholders’ concerns about financial reporting risk or whether consistency in the CEO and CFO positions is sufficient to alleviate any such concerns. Consistent with predictions based on upper echelon theory (UET), we find that greater turnover among executives other than the CEO and CFO increases perceptions of financial reporting risk. We further find that these perceptions vary based on local market characteristics that affect a firm’s ability to replace executive talent. Further analyses suggest that the perceptions of financial reporting risk in response to turnover among other top executives offsets deterioration in financial reporting quality.

Keywords: Turnover, financial reporting risk, audit fees, financial reporting quality

JEL Classification: G30, M12, M41, M42

Suggested Citation

Bills, Kenneth L. and Harding, Michelle and Seidel, Timothy A. and Truelson, Jonathan, The Influence of Turnover among Other Top Executives and Local Market Characteristics on Financial Reporting Risk in the Presence of CEO and CFO Continuity (July 2022). Available at SSRN: https://ssrn.com/abstract=3733649 or http://dx.doi.org/10.2139/ssrn.3733649

Kenneth L. Bills

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States

Michelle Harding (Contact Author)

Virginia Tech ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States
5402313181 (Phone)

Timothy A. Seidel

Brigham Young University ( email )

Provo, UT 84602
United States

Jonathan Truelson

Mississippi State University ( email )

Mississippi State, MS 39762
United States

HOME PAGE: http://www.business.msstate.edu/directory/jmt342

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