On the choice and replacement of chief financial officers

This paper. provides empirical evidence regarding why firms replace their C FOs. Empirical tests are based on a sample of 2,227 CFO appointments over t he 1984-1997 time period. Key findings reported in the paper are: (a) exter nal CFO succession rate is markedly higher than the external CEO succession rate, (b) the incidence of retirement is less common for serving CFOs as c ompared to the top executive, (c) CFO turnover is preceded by negative exce ss returns, (d) CFO turnover is preceded by a decline in operating return o n assets in the pre-period, (c) announcements of CFO turnover are associate d with a significant negative stock price reaction when old CFO quits and f irm 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 consisten t 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.