Corporate Governance

A Restatement Is A Kiss of Death For Executives

By Fei-Lu Qian

In a new study on management turnover rates, two researchers, Anup Agrawal and Tommy Cooper, found a 10% difference in the adjusted turnover rate for chief financial officers at companies that restated, compared to CFOs at non-restating companies. Moreover, using the same regression model for turnover rates on chief executive officers, the study found a 14% difference.

The study, entitled ?Corporate Governance Consequences of Accounting Scandals: Evidence from Top Management, CFO and Auditor Turnover,? surveyed 518 restatements between 1997 and 2002. In focusing on the study?s raw statistics, before any adjustments, the researchers concluded that 65% of CFOs and 53% of CEOs leave after their companies restate. This compares to only 43% of CFOs and 34% of CEOs at non-restating companies. Most interestingly from the study, unlike top executives, an audit firm has no greater chance of being replaced by a company when there is a restatement.

Full post as published by PomTalk on November 28, 2007 (boomark / email).