Accounting Irregularities and Executive Turnover in Founder‐Managed Firms

ABSTRACT: This study tests the hypothesis that founder CEOs are less likely to be fired than non‐founder CEOs when accounting irregularities are disclosed. We also examine whether CFOs are more likely to shoulder the blame when the CEO is a founder. Using a sample of 96 newly public firms with accounting irregularities, and a control sample of similar newly public firms, we document that the probability of CEO (CFO) turnover in the wake of an accounting irregularity is lower (higher) when the firm's CEO is also a founder. The difference in CEO turnover rates is dramatic, with nonfounder CEOs turning over at a rate of 49 percent, as compared to only 29 percent for founder CEOs. Our overall findings are consistent with the notion that the board's response to irregularities differs when the CEO is a founder.