Abstract
This study examines the incidence of financial restatement in CEO turnover firms. Using 78 CEO turnover firms from 2008 to 2010 among nonfinancial institution, we find that the age of the CEO influences restatement in the year prior to the CEO turnover. Specifically, older CEOs have higher probability of restating financial statements as they may be pressing for the last bonus/pay that they would likely receive. In contrast, we find that CEOs with forced turnover are less likely to be involved with restatements. This contradicting result may be due to the limited control of financial and accounting matters by the outgoing CEO as compared to the board of directors. Firm characteristics such as size, Big 4, and growth as measured by the market to book value have a positive relationship with restatement, which suggests that big companies with high growth have higher probability of restatement. The study also supports the argument of debt as a monitoring cost as debt is argued to constraint opportunistic earnings management behavior including restatement.
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