The Impact of Accounting Restatements on CFO Turnover and Bonus Compensation: Does Securities Litigation Matter?

Advances in Accounting, (24:2), 2008, pp. 162-171.

38 Pages Posted: 18 Sep 2006 Last revised: 12 Feb 2009

See all articles by Denton Collins

Denton Collins

Texas Tech University - Rawls College of Business

Austin L. Reitenga

University of Alabama

Juan Manuel Sanchez

University of Texas at San Antonio

Date Written: June 1, 2008

Abstract

This paper examines the association between accounting restatements, class-action securities litigation and chief financial officer (CFO) turnover and bonus compensation. We identify income-decreasing earnings restatements that were the result of aggressive accounting policies, and hypothesize that these restatements will result in higher CFO turnover rates, and lower bonus compensation, especially when the firm is the target of a restatement-related class-action securities lawsuit. Our results indicate that CFO turnover and bonus compensation are affected by restatements, but only when the restatement firm is the target of a class-action suit. When we expand the analyses to consider other types of executives (e.g., CEOs and COOs), we continue to find that turnover only occurs in the presence of a class action suit. However, bonus compensation penalties to other types of executives are not limited to litigation-related restatements.

Keywords: Earnings restatements; chief financial officers, executive compensation; executive turnover; contracting penalties, disciplinary actions

Suggested Citation

Collins, Denton and Reitenga, Austin L. and Sanchez, Juan Manuel, The Impact of Accounting Restatements on CFO Turnover and Bonus Compensation: Does Securities Litigation Matter? (June 1, 2008). Advances in Accounting, (24:2), 2008, pp. 162-171., Available at SSRN: https://ssrn.com/abstract=930656

Denton Collins (Contact Author)

Texas Tech University - Rawls College of Business ( email )

School of Accounting
Lubbock, TX 79409
United States

Austin L. Reitenga

University of Alabama ( email )

Culverhouse College of Commerce
Box 870223
Tuscaloosa, AL 78249
United States
205-348-5780 (Phone)

Juan Manuel Sanchez

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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