Are CFO Gaps Costly to Corporate Information Environment?

Invited by Wei Shi

Abstract

We examine whether CFO gap has any adverse impact on corporate information environment with CFO gap defined as cases when firms leave the CFO position vacant for a period of time between old CFO departure and new CFO appointment. We compare 531 CFO turnovers with gap and 1,369 CFO turnovers without gap over the sample period 2004-2012. We find that CFO gap is associated with significant and adverse changes across a wide range of information
environment measures, including the likelihood and accuracy of management forecasts, the financial reporting quality, the accuracy and dispersion of analyst forecasts, and the bid-ask spread. In contrast, CFO turnovers without gap are not associated with significant changes in firms’ information environment. Our findings suggest that even though CFOs have assumed increasingly important roles in firms’ strategic planning, they remain critical to firms’ information production and communication.

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