Effect of Sec Enforcement Actions on CEO and Cfo Forced Turnovers: Evidence Associated with Sox Provisions

Abstract

This study provides evidence that the effect of SOX provisions of SOX 302, SOX 303, and SOX 305 on the SEC-sanctioned CEO and CFO turnovers. Our findings show that the SEC uses enforcement actions and SOX provisions effectively to remove culpable CEOs and CFOs. The SEC-sanctioned CEOs are likely forced to resign when they violate SOX 305 and sanctioned-CFOs are likely forced to resign when they violate SOX 303 and their CPA licenses are suspended. When CFOs are masterminds, they are more likely forced to resign but they are less likely to be forced to resign when they team up with CEOs for fraudulent financial reporting. CFOs are also more likely to resign when firms face bankruptcy and restate earnings and when they face criminal charges in the post-SOX period.

Keywords: SOX provisions, CEO/CFO turnovers

JEL Classification: M41,M48, G34, G38