On the choice and replacement of chief financial officers

This paper. provides empirical evidence regarding why firms replace their CFOs. Empirical tests are based on a sample of 2,227 CFO appointments over the 1984-1997 time period. Key findings reported in the paper are: (a) external CFO succession rate is markedly higher than the external CEO succession rate, (b) the incidence of retirement is less common for serving CFOs as compared to the top executive, (c) CFO turnover is preceded by negative excess returns, (d) CFO turnover is preceded by a decline in operating return on assets in the pre-period, (c) announcements of CFO turnover are associated with a significant negative stock price reaction when old CFO quits and firm replaces with an internal appointment, and (f) CFO turnover is preceded by abnormally high CEO turnover. Overall, evidence is consistent with the hypothesis that CFO turnovers ai e disciplinary. Evidence is also consistent with the hypothesis that rapid sales growth accompanied by weak operating performance leads firms to bring in outside talent, (C) 2001 Published by Elsevier Science S.A.