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Pump and Jump: Earning Management around CFO Turnovers
Steven Balsam, Temple University
Setiyono Miharjo, Temple University & Universitas Gadjah Mada
Eric Press, Temple University
ABSTRACT. We study earnings management around voluntary, non-routine turnover of Chief Financial Officers, whom the 2002 Sarbanes-Oxley Act made explicitly responsible for the integrity of financial reports. We investigate whether CFOs “pump and jump”—manage earnings upward at a previous employer to obtain a better position at a new firm. From 1993-2002 (prior to Sarbanes-Oxley), positive discretionary accruals precede CFO jumps. In contrast, post-Sarbanes-Oxley, we find negative discretionary accruals preceding CFO jumps. Consistent with prior research, we are unable to identify similar behavior among a sample of CEOs during any part of our sample period.
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