UCLA

This study examines the contributing factors to different turnovers of chief financial officers (CFOs) and the implication of these CFO turnovers on firm operating performance, accounting information quality and management forecast accuracy. The performance-turnover relation is examined under a more refined turnover classification, which considers organizational commitment and job satisfaction, the two most common determinants of employee turnovers shown in the psychology literature.

By studying 1,182 CFO turnovers during 2002 to 2012, I find the CFO performance-turnover relation varies significantly across different turnover categories. As anticipated, no turnover-performance relation is observed among CFO turnovers due to non-work responsibilities. However, better performance does not translate into higher likelihood of promotions. Furthermore, while under-performing CFOs are more likely to be replaced involuntarily, these disciplinary turnovers trigger limited or no subsequent improvements in firm performance. Finally, voluntary CFO turnovers are followed by significant deterioration in accounting reporting quality, with no concurrent changes in real firm activities. These turnovers reflect accounting policy changes, which should be analyzed and accounted for when conducting future firm valuations.