Title: CFO resignations: their underlying performance and behavioural context

Authors: Chuo-Hsuan Lee, Edward J. Lusk, Michael Halperin

Addresses: School of Business and Economics, The State University of New York (SUNY) at Plattsburgh, 101 Broad Street, Plattsburgh, NY 12901, USA. ' School of Business and Economics, The State University of New York (SUNY) at Plattsburgh 101 Broad Street, Plattsburgh, NY 12901, USA; Department of Statistics, The Wharton School, University of Pennsylvania, Philadelphia, PA, USA. ' Lippincott Library of the Wharton School, University of Pennsylvania, Huntsman: 3730 Walnut St., Philadelphia, PA 19104, USA

Abstract: CFO turnover has been accelerating since the enactment of Sarbanes-Oxley: 2002. CFO resignations provide signals to the market and to the external auditors; unfortunately, the behavioural context underlying CFO mobility creates information signals that make it difficult to discern departures from dismissals. The results of this obfuscation are: 1) CFOs are unsure of the performance profile that underlies their dismissal-risk; 2) the market may over- or under-react to the mobility event and in so doing fail to correctly calibrate the future value of the firm; 3) the external auditor may have to assume a conservative assessment of the business risk of the firm leading to increased audit fees. We find that CFO resignations occur more frequently in the case where firms have large negative DA and low ROA than in the case where firms have large negative DA and high ROA. We offer this information as a way to better understand the likely drivers of CFO mobility. Also, distinct financial characteristics between these two subgroups are documented and we find that these results are likely to be invariant to firm size.

Keywords: CFO turnover; risk management; market reaction; audit fees relationships; behavioural finance; CFO resignations; performance; chief financial officer.

DOI: 10.1504/IJBAF.2010.032845

International Journal of Behavioural Accounting and Finance, 2010 Vol.1 No.4, pp.312 - 334

Published online: 25 Apr 2010 *

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