Chief Financial Officer Turnover, Sarbanes–Oxley, and Market Reactions

Robert J. Parker, Yun-Chia Yan (), Mai Dao () and David Manry ()
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Robert J. Parker: Department of Accounting, College of Business Administration, University of New Orleans, Lakefront Campus, New Orleans, LA 70148, USA
Yun-Chia Yan: ECOBE 226A, School of Accountancy, Vackar College of Business & Entrepreneurship, University of Texas Rio Grande Valley, 1201 W University Dr, Edinburg, TX 78539, USA
Mai Dao: College of Business and Innovation, MS 103, The University of Toledo, Toledo, OH 43606, USA
David Manry: Department of Accounting, College of Business Administration, University of New Orleans, Lakefront Campus, New Orleans, LA 70148, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2023, vol. 26, issue 01, 1-43

Abstract: We argue that forced CFO turnover has a complex relation with SOX reports of internal control problems. Sometimes forced turnover precedes an adverse SOX report whereas, in other cases, forced turnover follows the unfavorable SOX opinion. Further, financial markets are aware of this complex relation. Using a large sample collected over eight years, we find evidence to support our arguments. Regarding market reactions, we find that upon the announcement of CFO turnover, cumulative abnormal returns (CAR) are negative and significant for forced resignations. This reaction is mitigated if an unfavorable SOX opinion had been issued for the prior year. We also find that negative market reactions to adverse SOX reports are attenuated, in part, by whether the company previously forced the CFO to leave.

Keywords: Sarbanes–Oxley Act (SOX); material weakness in internal controls; Chief Financial Officer (CFO); CFO turnover; market reactions (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S0219091523500042

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