Lead you? Let me think! A status based perspective on CEO replacement following financial restatement

• Main Authors: ACHARYA, Abhijith G., GOMULYA, David
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: Financial restatement; CEO replacement; Upper echelons theory; Status; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6455
• Institution: Singapore Management University

Firms seek to repair the financial andreputational damage due to misrepresentation by replacing their CEO, which isfavorably received by the stakeholders. However,this assumes that those firms tainted due to misrepresentation that have an intention to replace their CEO also havethe ability to do so – an assumptionnot empirically examined. We address this paucity by examining how the relativestanding of the tainted firm and its leaders affect its ability to recruit asuccessor CEO. Using matched sample, we find that while high-status of thetainted firm increases the likelihood that a high-status successor CEO isrecruited, high-status of the outgoing CEO reduces that likelihood, and boardstatus does not have any effect on successor CEO recruitment. Our resultshighlight a key challenge firms face because while stakeholders expect taintedfirms to replace their CEOs, doing so may make it more challenging to recruithigher status successor CEOs probably better positioned to repair the damagedfirm reputation.