Disciplinary Measures in Response to Restatements After Sarbanes-Oxley

Journal of Accounting and Public Policy, Vol. 29, No. 3, pp. 195-225, June 2010

Posted: 20 May 2007 Last revised: 9 Jun 2010

Jeffrey J. Burks

University of Notre Dame

Date Written: April 28, 2009

Abstract

This study examines whether boards discipline CEOs and CFOs more severely for accounting restatements after passage of the Sarbanes-Oxley Act (SOX). The disciplinary actions I focus on are job termination and reductions in bonus payouts. Boards have incentive to take the highly visible action of terminating a manager to satisfy demands by outsiders for more vigilant corporate governance after SOX. However, terminating an executive entails the risk of hiring an inferior replacement and other costs. Imposing these costs on the firm and shareholders may not be justified after SOX because the severity of the restatements declines significantly. Despite the pressure on boards to appear vigilant, I find that when disciplining CEOs after SOX, boards gravitate away from termination and toward bonus penalties, a development commensurate with the less severe restatements of the post-SOX period. In contrast, boards appear to strengthen disciplinary action against CFOs after SOX despite the decline in restatement severity.

Keywords: accounting restatements, manager turnover, executive compensation, corporate governance, Sarbanes-Oxley

JEL Classification: M41, M43, G34, G38, J33

Suggested Citation

Burks, Jeffrey J., Disciplinary Measures in Response to Restatements After Sarbanes-Oxley (April 28, 2009). Journal of Accounting and Public Policy, Vol. 29, No. 3, pp. 195-225, June 2010. Available at SSRN: https://ssrn.com/abstract=987340

Jeffrey J. Burks (Contact Author)

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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