Economic consequences of unqualified chief accounting officer announcements

ABSTRACT

This study investigates market reactions to announcements of chief accounting officer (CAO) unqualifications. Using 61 Taiwanese observations from 2006 to 2020, we find negative market reactions prior to unqualified CAO announcements. Our results also show that markets react more negatively when unqualified CAOs are female. This study suggests potential information leakage and provides implications for regulators and market participants.

KEYWORDS:

• Chief accounting officers
• unqualification
• market reactions
• information leakage
• gender

JEL CLASSIFICATION:

• G14
• G38
• M12
• M5

Acknowledgments

We appreciate the comments made by the discussant and participants from the NCKU Accounting Practice and Development Forum held in October 2020. This research is supported in part by “Higher Education SPROUT Project” and “Center for Innovative FinTech Business Models”, Ministry of Education to the Headquarters of University Advancement at National Cheng Kung University (NCKU).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The requirements related to the qualification of CAOs and disclosures of unqualifications are respectively specified in Article 3 and Article 10. The full text can be found in Appendix A.

² An announcement example is provided in Appendix B.

³ Our sample period begins in 2006 when the CAO qualification was first required and ends in August 2020 when the data collection for this study was completed.

⁴ The unqualified CAOs may not be changed once non-compliance is remediated on a timely basis.

⁵ To examine whether positive disclosures are made to distract investor attention, we classify 12 observations into the first group with 2 firms disclosing positive news (declaration of cash dividends), where SDAY_POS is coded 1 and 0 otherwise, and the second group with 10 firms making other confounding disclosures (e.g. turnovers of top managers, change of the company address, announcements of the upcoming shareholder meeting), where SDAY_OTHER is coded 1 and 0 otherwise.

Additional information

Funding

This work was supported by the Higher Education SPROUT Project, Ministry of Education to the Headquarters of University Advancement at National Cheng Kung University (NCKU) [69115908]