A Changing of the Guard: Executive and Director Turnover Following Corporate Financial Restatements

This is the authors' abstract. We don't add key points for this paper.

Using event history analysis, we found that CEOs and CFOs of firms filing a material financial restatement were more than twice as likely to exit their firms as their counterparts in a matched sample. Directors and audit committee members were approximately 70 percent more likely to exit in restatement firms. The magnitude, ubiquity, and temporal proximity of executive and director turnover following a restatement indicate that such events pose a serious threat to organizational legitimacy, independent of firm performance. Restatements therefore provide an important and unique context for studying the accountability of strategic leaders for organizational crises.