Download This PaperHow resilient are firms’ financial reporting processes to the sudden loss of a CFO? Evidence from sudden deaths
52 Pages Posted: 2 Mar 2023 Last revised: 16 Feb 2025
Date Written: February 16, 2025
Abstract
We examine how resilient firms’ financial reporting processes are to the sudden death of a CFO—a plausibly exogenous shock that allows us to provide insights on the role of the CFO while abstracting away from the endogenous nature of CFO employment. We find that the likelihood of an adverse reporting event—a delayed SEC filing or ex post restatement—doubles in the year following the event, on average. The financial process is less resilient in more complex firms and more resilient in firms with stronger internal controls and highly educated employees. Sudden CEO deaths, in contrast, have no discernible impact on adverse financial reporting events. Collectively, our study highlights the value of the CFO on the financial reporting process as well as potential financial reporting benefits of CFO contingency plans.
Keywords: Chief Financial Officers, Financial Reporting Quality, Financial Reporting Resilience, Duress, Duress, Filing Delays, Restatements, Managerial Turnover, Internal Control Quality, Rank-and-File Employee Education
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