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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Robert J. Parker & Yun-Chia Yan & Mai Dao & David Manry, 2023. "Chief Financial Officer Turnover, Sarbanes–Oxley, and Market Reactions," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 26(01), pages 1-43, March.
    • Handle: RePEc:wsi:rpbfmp:v:26:y:2023:i:01:n:s0219091523500042
    DOI: 10.1142/S0219091523500042
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