CFO Resignation in IPO Years, Pre-IPO Earnings Management and Post-IPO Performances: Evidence from Newly-Listed Chinese Companies

Using a sample of newly-listed Chinese firms, we find that almost 30 percent of chief financial officers (CFOs) resign shortly within one year after initial public offerings (IPO). The companies from which the CFOs resign within IPO years tend to experience a decline in operating performances in IPO years. Moreover, these companies are associated with more pre-IPO earnings management and longer length of IPO review period, i.e., the period from the submission of an IPO application to the IPO approved by the government. The results suggest that CFO resignation signals the deterioration of post-IPO performances in a country where IPO is controlled by the government and companies may manipulate pre-IPO earnings to meet the profitability thresholds for IPO set by the government.

Keywords: CFO resignation, earnings management, post-IPO performances, China