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Management Intent and CEO and CFO Turnover around Earnings Restatements: Evidence from the Post-Enron Era
Karen M Hennes, The Pennsylvania State University
Andrew J Leone, The Pennsylvania State University
Brian P Miller, The Pennsylvania State University
ABSTRACT. We examine the extent to which management’s intention to mislead investors affects the probability that CEOs and CFOs are terminated around restatement announcements. Using a 2002-2005 sample of restatements, we find that turnover rates are much higher for intentional violations. This suggests that boards take swift action to dismiss managers when restatements are the result of intentional misbehavior and that the relatively low turnover rates documented in earlier research are likely due to the inclusion of unintentional violations. We also compare the turnover rates pre- and post-Enron and find that rates are similar across the two periods. We conclude that regulation introduced to encourage boards to discipline managers for misreporting had little impact on turnover rates. Our findings highlight the importance of distinguishing restatements by a meaningful measure of severity and provide some of the first evidence on executive penalties for misreporting in the post-Enron period.
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