Earnings Restatements Deadly to CFO Careers?

Lora Bentley

A group of professors recently studied the effects of financial restatements on the careers of public company finance executives. CFO.com's Alan Rappeport says the results were fascinating. SSRN reports Denton Collins from the University of Memphis, University of Alabama's Austin Reitenga, and Adi Masli and Juan Manuel Sanchez from the University of Arkansas collaborated on the work, "Earnings Restatements, the Sarbanes-Oxley Act and the Disciplining of Chief Financial Officers."


Study parameters, according to Rappeport, were as follows:

The authors surveyed 167 firms that restated earnings downward before Sarbox and 197 after it was enacted. They focused on CFOs who were fired within two years of the restatement and tracked their career progress for the next four years. The study also compared the restating companies with a control group of similar companies that did not restate.

In short, they concluded companies that make restatements "have a substantially higher rate of involuntary CFO turnover." Further, CFO.com reports, since Sarbanes-Oxley was enacted, CFOs who are fired post-restatement also have a harder time finding new jobs. Specifically, only 17 percent of those who were fired post-restatement had any luck finding comparable work after Sarbanes-Oxley.

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