CEO Turnover and Internal Control Material Weaknesses

Abstract

Currently, CEOs reward great attention to internal controls because they know well in the absence of an effective internal control system, typically accomplishing the primary mission, that is, maintaining profitability and minimizing unexpected events is incredibly difficult. The practical aim of the paper is precisely to examine whether CEO replacement occurs under account-level and company-level internal control material weaknesses (ICMWs) in Tehran Stock Exchange (TSE). Listing companies of TSE are surveyed as the statistical population in the paper and 99 companies are properly investigated as the sample using logit regression model during 2013-2018 based on essential characteristics of research (a total of 594 observations). Empirical findings revealed there is no significant relationship between account-level and company-level ICMWs with CEO replacement. Therefore, one can say achieving the appropriate internal control implies it remains not merely dependent on the CEOs but requires the presence of committed, honest staff withholding strong moral values. Predominantly, the present study expanded the literature and provides sufficient empirical evidence of the CEO replacement on ICMWs in the specific context of Iran as a developing country.

Keywords

• internal control material weaknesses (icmws)
• account-level internal control
• company-level internal control
• ceo replacement
• tse