The Effect of CEO and CFO Resignations on Going Concern Opinions

Anecdotal evidence suggests that the resignation of a top executive increases a firm's likelihood of failure. When auditors perceive an increased likelihood of failure, a going concern modified audit opinion is issued. This study tests the relationship between top management resignations and the issuance of going concern audit opinions. Firms in which a CEO or CFO resigned were more likely to receive a going concern audit opinion than firms in which the CEO or CFO did not resign. The study uses financially distressed firms from 2008-2010 and a logistic regression model to test the relationship. The findings show a positive relationship between CFO resignations and firms receiving a going concern audit opinion. However, no significant relationship is found between CEO resignations and receiving a going concern audit opinion. Firm size, cash flow from operations, stock return, and investments also had a significant relationship with going concern opinions