Auditor-provided nonpublic signals of misreporting and CFO dismissal

• 成果类型: Article; Early Access
• 署名作者: Lamoreaux, Phillip T.; Liu, Summer Zhujun; Newton, Nathan J.; Zhang, Min
• 署名单位: Arizona State University; Arizona State University-Tempe; Texas A&M University System; Texas A&M University College Station; State University System of Florida; Florida State University; Renmin University of China
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-025-09915-2
• 发表日期: 2025
• 关键词: CORPORATE GOVERNANCE; ceo turnover; independent directors; earnings management; executive turnover; firm performance; CONSEQUENCES; RESTATEMENTS; BOARD; COMMITTEE

摘要

Research suggests that board members value financial reporting quality because executive dismissal often follows low reporting quality events. However, inferences about the board's demand for reporting quality in these studies are confounded by board members' reputation incentives because the events examined are public (e.g., restatements). We investigate boards' demand for reporting quality by exploiting a private signal of misreporting: audit adjustments communicated to the Board by the external auditor. We first survey 29 audit committee chairs to understand whether boards use audit adjustments in their oversight of management and then conduct an empirical investigation to answer our research question. We find an increased likelihood of CFO dismissal following audit adjustments. This association is driven by adjustments that reduce income and by firms with better board oversight. These findings suggest that boards proactively use nonpublic signals of reporting quality and incorporate information from auditors into their monitoring function.