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An International Meeting of American Accounting
Association
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The Hiring of Accounting and Finance Officers from Audit Firms: How did the Market React? |
Clive Lennox
Hong Kong University of Science & Technology
Marshall Geiger
University of Richmond
David North
University of Richmond
Abstract: The Sarbanes-Oxley Act (SOX) restricted the hiring of accounting and finance officers from companies’ own audit firms, reflecting concerns that such “revolving door” appointments impair the quality of audited financial statements. However, it has also been argued that companies may have benefited from hiring individuals familiar with their systems, organization and personnel, and that an auditor’s acceptance of an employment position may have signaled positive news about the company. To determine how shareholders viewed revolving door appointments, we examine three-day cumulative abnormal returns around the announcements of newly appointed accounting and finance officers. We find the market valued the revolving door appointments more positively than other appointments. Further tests reveal that the positive market reaction to revolving door appointments is driven by smaller companies.