Executive Turnover in the Presence of Internal Control Weaknesses Post-Sox

摘要

This study tests the hypothesis that powerful CEOs are less likely to be fired than CFOs when internal control weaknesses are reported under Sarbanes; Oxley Section 404. This study uses four proxies for CEO power: Dual status as CEO and Chairman of the Board, CEO Pay Slice (compensation relative to other top firm executives), CEO tenure, and firm diversification (business and geographic). Controlling for prior year stock returns and ROA, and using a sample of 7,325 observed firm years, I document no significant relationship between CEO power and CFO scapegoating relating to SOX 404. Of the four proxies for CEO power, tenure had the strongest correlation with CFO scapegoating. My overall findings do not provide significant evidence as to the effect of CEO power on a board’s decision to fire a CEO vs. a CFO in the wake of internal control weaknesses.