Research: A CFO’s abrupt death can harm firms’ financial reporting

What happens when a firm’s chief financial officer suddenly dies?

MaryJane Rabier, WashU Olin assistant professor of accounting, investigated. Her research found that when a CFO dies unexpectedly, the likelihood more than doubles that the firm will experience a harmful financial reporting outcome, such as a late SEC filing.

Her paper “How resilient are firms’ financial reporting processes to the sudden loss of a CFO? Evidence from sudden deaths” has been accepted at The Accounting Review. Rabier authored the paper with Sarah E. McVay of the University of Washington.

What inspired you to research this topic?

The answer is a bit personal and difficult. While there is extensive research on the effects of sudden CEO deaths, I hadn’t seen any work on CFOs in this context. The idea came to me while I was recovering from the sudden loss of my son, Luca, and grappling with my own mortality. Death was very much on my mind. While reading a study about CFOs, the connection — death plus CFO — suddenly stood out to me. So, in part, the idea was random, but it was also deeply shaped by personal experience.

What are your main findings?

Sudden CFO deaths have a significant impact on the financial reporting process. Firms are more than twice as likely to file a restatement or file their 10-K or 10-Q late following a CFO’s unexpected passing. This highlights the critical role CFOs play in maintaining financial reporting integrity.

Did any of your findings surprise you?

I was surprised by just how much CFOs matter to financial reporting. Although prior research has examined CFO influence, it has been difficult to isolate their direct impact. Most studies focus on CFO turnover due to resignations or firings, but those events often coincide with other firm changes, making it hard to separate the CFO’s role from broader firm dynamics. Our setting removes many of those confounding factors, and the results suggest CFOs play an even more substantial role than previously understood.

What can firms learn from this research?

Our study has significant implications for board members trying to figure out how much to pay their CFOs when they want their CFOs to focus on financial reporting. Our setting is as clean as possible to figure out the true effect of CFOs on financial reporting. By knowing that restatement likelihood can double with the sudden departure of a CFO, board members can more accurately value their CFOs.

How can your findings be applied?

Our findings suggest that firms should take CFO succession planning more seriously, particularly with respect to financial reporting continuity. Companies should have robust contingency plans in place, such as ensuring that the finance team is well-prepared to manage reporting processes in the absence of the CFO. Additionally, firms may want to reconsider the level of compensation and incentives they offer CFOs to retain top talent, especially those with strong financial reporting expertise.