LABOR MARKET OUTCOMES OF RESTATEMENTS FOR CORPORATE ACCOUNTANTS By Lulu Shen A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of Business Administration -Doctor of Philosophy 2018 ABSTRACT LABOR MARKET OUTCOMES OF RESTATEMENTS FOR CORPORATE ACCOUNTANTS By Lulu Shen This study examines the impact of restatements on the labor market outcomes for corporate accountants. I use LinkedIn to identify a comprehensive sample of corporate accountants who work for firms that restated their financial statements between 2004 and 2014. Using a difference -in-differences researc h design , I find that corporate accountants experience a higher turnover and a worse promotion prospect after restatements are announced , compared to a control sample of human resources professionals within the same firm . The increase in turnover is more p ronounced for senior internal auditors, and in firms with more severe restatements. I also find that senior internal audit ors experience a higher turnover but not a worse promotion prospect before restatements are announced , compared to senior corporate ac countants. Overall, my find ing s suggest that corporate accountant experience adverse labor market outcomes after restatements are announced . Internal auditors could minimize the adverse labor market outcomes of restatements by proactively departing. iii This dissertation is dedicated to my parents and my wife. Thank you for your support .iv ACKNOWLEDGMENTS I am grateful for the support and guidance provided by my dissertation committee of James Dulebohn, John Jiang (Chair), Ranjani Krishnan, and Isabel Wang. I thank helpful comments and suggestions from Andrew Acito, Agnes Cheng, Qiang Cheng, Marilyn Johnson, Bin Ke, Paul Madsen, James Ohlson, Anh Persson, Kathy Petroni, Matt Philips (2018 FARS discussant) , Sarah Stuber, Philip Wang, Dan Wangerin and other workshop participants at Michigan State University, McMaster University, National University of Singapore, Singapore Management University, Hong Kong University of Science and Technology and Hong Kong Pol ytechnic University. I also thank the generous financial support provided by the Department of Accounting and Information Systems at Michigan State University. v TABLE OF CONTENTS !LIST OF TABLES ......................................................................................................................... vi!LIST OF FIGURES ...................................................................................................................... vii !1.!INTRODUCTION .................................................................................................................. 1!2.!DO CORPORATE ACCOUNTANTS SUFFER LABOR MARKET PENALTIES AFTER RESTATEMENTS? ........................................................................................................................ 7!3.!DO CORPORATE ACCOUNTANTS LEAVE BEFORE RESTATEMENTS ANNOUNCEMENTS? ................................................................................................................. 11!4.!DATA ................................................................................................................................... 15!4.1 !Restatement Firm Sample ..........................................................................................................15!4.2 !Individual Employee Sample .....................................................................................................17!5.!RESEARCH DESIGN .......................................................................................................... 21!5.1 !Firm -Level Turnover Rates ........................................................................................................21!5.2 !Individual -Level Promotion Outcome ........................................................................................23!6.!EMPIRICAL RESULTS ....................................................................................................... 25!6.1 !Turnover Rates in Post -Restatement Periods .............................................................................25!6.2 !Promotion Outcomes in Post -Restatement Periods ....................................................................26!6.3 !Turnover Rates in Restatement Periods .....................................................................................27!6.4 !Promotion Outcomes in Restatement Periods ............................................................................28!6.5 !Demotion Outcomes in Post -Restatement and Restatement Periods .........................................29!6.6 !Falsification Tests of Parallel Assumptions ...............................................................................30!7.!CONCLUSION ..................................................................................................................... 31!APPENDIX ................................................................................................................................... 33!Appendix A: Variable Definitions ..........................................................................................................34!Appendix B: Figures ...............................................................................................................................35!Appendix C: Tables ................................................................................................................................39!REFERENCES ............................................................................................................................. 53! vi LIST OF TABLES Table 1: Firm Sample Selection .................................................................................................... 39!Table 2: Firm Level Descriptive Statistics .................................................................................... 40!Table 3: Individual Sample Selection ........................................................................................... 41!Table 4: Demographic Characteristics of Individual Employees ................................................. 42!Table 5: Firm Level Distribution of Employee Turnovers ........................................................... 42!Table 6: Turnover Rates of Corporate Accountants and HRs in Post -Restatement Periods ........ 43!Table 7: Turnover Rates of Internal Auditors and Other Accountants in Post -Restatement Periods ............................................................................................................................................... 44!Table 8: Promotion Outcomes in Post -Restatement Periods ........................................................ 46!Table 9: Turnover Rates of Corporate Accountants and HRs in Restatement Periods ................ 47!Table 10: Turnover Rates of Internal Auditors and Other Accountants in Restatement Periods . 48!Table 11: Promotion Outcomes in Restatement Periods .............................................................. 50!Table 12: Demotion Outcomes in Post -Restatement and Restatement Periods ........................... 51!Table 13: Parallel Assumptions in Pre -Restatement Periods ........................................................ 52! vii LIST OF FIGURES Figure 1: Restatement Period Construction .................................................................................. 35!Figure 2: Top 50 Keywords in EmployeesÕ Skill Sets .................................................................. 36!Figure 3: Turnover Rates of Corporate Accountants and HRs ..................................................... 37!Figure 4: Turnover Rates of Internal Auditors, Other Accountants, and HRs ............................. 38!1 1.!INTRODUCTION This study examines the impact of restatements on the labor market outcomes for corporate accountants 1. Prior studies find that CEO s, CFO s, and boards of directors in firms with financial misreporting suffer severe outcomes (Srinivasan 2005; Desai et al. 2006; Dou 2017) . For example, Desai et al. (2006) find that managers in restatemen t firms experience a higher likelihood of turnover and a po orer future employment prospect . Karpoff et al. (2008) find that managers in firms with financial misconduct (fraud firms) bear substantial financial losses in stock values, regulatory fines, restrictions on future employments , and criminal charges. The labor market for directors a lso holds the board of directors accountable for financial misreporting , disciplin ing them in var ious forms including loss of directorship, negative recommendation s, and litigation (Srinivasan 2005; Brochet and Srinivasan 2014; Dou 2017) . Besides top executives and boards of directors, corporate accountants are also involved in financial misreporting (Beasley et al. 2010) . During the WorldCo m scandal , two former middle -level accounting managers and a former director of the general accounting department were charged with securities fraud (Pulliam 2003) . Although they cooperated with prosecutors during the investigation , one of the two accounting manager s was sentenced to five months in prison and another was sentenced to probation for three years . Other than anecdotal evidence from high -profile financial frauds, there is no direct empirical evidence on the labor market outcomes of financial misreporting for corporate accountants. 1 I focus on the impact of financial restatements on the labor market consequence for corporate accountants rather than the impact of financial fraud s. Prior studies use various financial misreporting measures (e.g., restatements, AAER, class action lawsui ts) to examine the consequences for top managers and boards of directors (Karpoff et al. 2017) . Compared to other financial misreporting measures, financial restatements are less severe and provide a larger sample size. However, finan cial restatement firms in my sample have violated U.S. GAAP so that restatements may still lead to adverse labor market consequences for corporate accountants. 2 It is important to examine w hether corporate accountants suffer advers e labor market outcomes after financial misreporting because such evidence has important public policy implications for how to discipline financial misreporting . Ex ante , it is not clear whether corporate accountants , either involved or not-involved in financial misreporting , experience labor market penalties similar to those for top managers and board members. On the one hand , regulators often prosecute corporate accountants who directly participate in a f inancial fraud (Beasley et al. 2010) . Even corporate accountants who are not directly involve d may also bear a negative reputation spillover effect from the misreporting (e.g., reputation damages, or job turnovers due to management team restructuring ). Weston Smith, the former CFO at HealthSou th, commented the association with HealthSouth damaged the reputation of innocent employees at HealthSouth (Malespin 2014) . On the oth er hand, most non -executives do not mastermind but are likely pressured by top managers to conduct wrongdoing s. In addition , some c orporate a ccountants may not be involved or aware of the ongoing financial frauds, and hence should not be culpable for financial misreporting . Therefore, whether corporate accountants in restatement firms will experience adverse outcomes in the labor market remains an open empirical question. The lack of empirical evidence on corporate accountantsÕ labor market outcomes after financial misreporting is mostly due to the difficulty of obtaining information on such employees . I overcome this challenge by collecting from LinkedIn a comprehensive sample of corporate accountants and a comparison sample of human resource profess ionals (hereafter , HRs) in firms that issued a restatement between 2004 and 2014 2. The positions of individual employees in my sample range from staff levels (e.g., staff accountant , bookkeeper ) to executive levels (e.g., 2 I choose HR professionals in the same firm as a control group for corporate accountants because the employees in both groups perform administrative functions. The financial restatements will not impact HRs directly so that using HRs as a control group helps mitigate the concern of omitted firm -level factors affecting the overall turnover and promotion prospect of employees in administrative functions. 3 controller, chief accounting officer, vice president of finance ). Using individual sÕ employment histor y disclosed on LinkedIn , I investigate two labor mar ket outcomes: employee turnover around restatements and subsequent promotion prospect s. I compare the turnover rates and promotion prospects of corporate accountants in a post -restatement period (i.e. , a period after a restatement is announced ) and a pre-restatement period (i.e. , a period before a restatement begins ). To control for firm -specific factors a ffecting an employeeÕs labor market outcome s, I use HR s as a control group. Adopting a difference -in-differences specification, I find that corporate accountants , relative to HR s, experience a 4.5% greater increase in the turnover rate s between the pre-restatement and the post -restatement period s. Based on the seniority of employees, I find that the greater increase in turnover is driven by senior corporate accountants . I further partition corporate accountants into internal auditors and other accountants because internal auditors could be held more accountable for financial misreporting than other accountants 3. As a result, the labor market outcomes for internal auditors could be worse than those for other accountants. I find that compare d to other senior accountants, senior internal audit ors exper ience a great er increase in tur nover and only in more severe restatement s. Regarding the subsequent career prospect s, I also find that corporate accountants , compared to HR s, experience a decrease in the likelihood of a future promotion by 8.2% between the pre-restatement period s and the post -restatement period s. Overall, these results suggest that corporate accountants , relative to HR s, experience both a higher turnover rate an d a worse promotion prospect after restatements . Next, I examine whether corporate accountants proactively leave their employers before restatements are announced (i.e. , a period when the misreporting is ongoing) . Inside knowledge of 3 Internal auditors conduct various internal audit processes to help audit committees deter mana gement misco nduct (AICPA 2005). 4 the restatements and career concerns could motivate voluntary proactive departure of corporate accountants . Corporate accountants are involved in the processing of financial information and regularly interact with external auditors. They may possess first -hand information about financial misreporting . For example, a n investigation after the WorldCom s candal suggests that dozens of employees knew about the WorldCom frau d before the fraud was revealed (Pulliam 2003) . The 2016 Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiner s (hereafter , 2016 ACFE report) show s that 51.5% of tips that lead to the discover y of fraud s come from employees. Call et al. (2016) also provide indirect evidence that mana gers grant rank -and -file employees more stock options during fraud periods to discourage them from whistle -blowing and to withhold information from the public 4. Career concerns and work ethic also motivate corporate accountants to protect their reputations. Recent studies on boards of directors suggest that directors in distressed firms preemptively leave their firms and successfully minimize reputation damages (Dou 2017; Fahlenbrach et al. 2017; Gao et al. 2017) . Former Enron accountant Sherron Wa tkins claimed that the best way to avoid reputational loss is to change jobs as soon as possible (Beenen and Erisman 2007). In add ition to career con cerns , work eth ic also motivates corporate accountants to proactively leave (Jones 1995; Chakravarthy et al. 2014) . To examine the likelihood of proactive turnover in corporate accountants before the restatement is revealed publicly, I apply a similar difference -in-differences design to compare changes in the turnover rate of corporate accountants and that of HRs between the restatement period (i.e. a period between the beginning date and the announcement date of a restatement ) and the pre-restatement period (i.e. a period before a restatement begins) . I find no significan t 4 Call et al. (2016) use the difference between the total stock options granted and the stock options granted to the top five executives t o proxy for the stock options to rank -and -file employees. 5 differences in the changes in the turnover rate s of corporate accountants and HRs. When I partition corporate accountants into internal auditors and other accountants , I find that senior internal auditors , relative to other senior accountants , experience a greater increase in turnover from the pre-restatement period s to the restatement period s. In terms of subsequent career prospect s, I find departing corporate accountants , relative to departing HRs, do not experience a worse promotion prospect from the pre-restatement period to the restatement period . Within corporate accountants, I also fail to find a diminished promotion prospect for internal auditor s, compared to other accou ntants. Overall, these results suggest that senior internal auditors , relative to other senior accountants , experience a higher turnover rate but not necessarily a worse promotion prospect from the pre-restatement period s to the restatement period s. This study makes two contributions to the literature. First, the existing literature has focused on the consequence s of financial misreporting for top executives and board s of directors ( Srinivasan 2005; Desai et al. 2006; Karpoff et al. 2008; Brochet and Srinivasan 2014 ; Dou 2017; ). This study provides the first large -scale empirical evidence on the labor market outcomes of restatements for rank -and -file corporate accountants. My findings suggest that corporate accountants in restatement firms experience a higher turnover rate and a worse promotion prospect after the restatements, compared to HRs from the same firm . From a career perspective, corporate accountants need to consider the adverse labor market consequences when they encounter financial misreporting in their employers. This evidence also has important policy implications for regulators . Besides financial re ward s for whistle -blowers , regulators could emphasize the labor market consequences to corporate accountants and encourage them to blow the whistle on financial misconduct. Second, the literature on predictin g financial misreporting relies on various firm -level financial and nonfinancial characteristics (Brazel et al. 2009; Dechow et al. 2011; Hobson et al. 6 2012). A higher turnover rate of internal auditors before restatements are announced could sign al the labor market about potential financial misreporting . Although this study does not directly test the predicti ve power of internal auditor turnover rate on financial misreporting , future research can explore the implications of internal auditor turnover in the context of financial misreporting . 7 2.!DO CORPORATE ACCOUNTANTS SUFFER LABOR MARKET PENALTIES AFTER RESTATEMENTS? In traditional agency problems, compensation designs and labor market s (e.g. , both internal and external markets ) are two primary mechanism s to motivate and discipline m anagers to maximize shareholdersÕ wealth. Fama (1980) argues that internal and external labor markets fulfill the disciplining role and provide opportunities for employees . The labor market can regularly re -evaluate an employeeÕs human capital by the difference between the individualÕs marginal output and the contracted marginal output . As a result, the incentive to maximize human capital in labor market s will discipline employees to fulfill their contract s with their employers . If an employee fails to fulfill his contract, his future career prospects will diminish because of the decrease of human capital accessed by the labor market. In the extreme cases (e.g., financial fraud) , the labor market could efficiently penalize managersÕ misbehaviors . In this paper, I focus on the labor market outcomes for individuals involved in financial misreporting . Prior studies have been focused on the labor market consequences for top executives and board of directors . Desai et al. (2006) examine the labor market penalties for top managers in restatement firms. They find that managers in restatement firms experience a higher likelihood of turnover and a po orer future employment prospect . Consistent with Karpoff and Lott (1993) , they argue that the labor market penalties of restatements for managers are severe and could partially substitute for public enforcement s from regulators. Using a sample of financial fraud s pursued by the Securities and Exchange Commission ( SEC) and the Department of Justice (DOJ) between 1978 and 2006 , Karpoff et al. (2008) identify 2,206 culpable individuals from the enforcement 8 actions and find that over 90% of them are fired during the violation or en forcement periods 5. In addition to losing jobs, the c ulpable parties bear substantial financial losses in stock values, regulatory fines, restrictions on future employment , and criminal charges. The adverse labor market outcomes apply not only to managers in charge but also to other parties in firms with financial misreporting . Outside directors on the board have the responsibility to monitor manager sÕ misbehavior s and oversee the firm Õs financial reporting. Prior studies find that the labor market penalize s those directors who fail to perform the monitoring functions by imposing loss es in direc torship and reputation damage s. For example, Srinivasan (2005) finds that outside directors in firms with restatements experience a higher turnover and loss es of directorship in other firms . Such labor market penalties are more severe for audit committee members. Similarly , Fich and Shivdasani (2007) also find reputational pena lties for outside directors in firms that faced class -action lawsuits due to financial fraud s. Beyond adverse labor market consequences, Brochet and Srinivasan (2014) find that outside directors, especially audit committee member s, and stock sellers, are more likely to be named in class -action lawsuits. The named directors receive more negative recommendations from proxy advisory firms and more negatives votes from shareholders afterward . Overall, this line of research suggests that outside directors also are held accountable for financial reporting failure s (e.g. , financial restatement, financial fraud) . Besides top executives and boards of directors, corporate accountants are also involved in financial misreporting (Beasley et al. 2010) . Other than the charges to accounting managers in high -profile financial scandals, there is little research examining whether corporate accountants in firms with financial misreporting bear any advers e labor market outcome s. Ex ante , it is not clear 5 Karpoff et al. (2008) identify 773 non -executive employees out of 2,206 individual employees in their sample. However, they are unable to collect the employment histories due the lack of such info rmation for non -executive employees in regulatory filings. Additionally, they can not identify the specific titles or positions of these non -executive employees. 9 whether corporate accountants working in restatement firms will bear any labor market penalty. On the one hand , regulators often prosecute corporate accountants who participate in a financial misreporting (Beasley et al. 2010) . Even corporate accountants who do not directly participate in a financial misreporting may bear nega tive reputation spillover effects from a financial misreporting . Weston Smith, the former CFO at HealthSouth , commented the association with HealthSouth later damaged the reputation of innocent employees at HealthSouth (Malespin 2014) . Condie et al. (2016) find that CFO s at the time the misreporting is occurring (i.e., CFOs are not charged with participating in the financial fraud) experien ce higher turnover and worse future career prospect s. Corporate accountants could also experience job turnovers due to management team restructuring after restatements (Fee and Hadlock 2004) 6. Recent studies show that the non-executive labor market efficiently impose s advers e outcomes on individual employees. For example, Gao et al. (2016) find that loan officers are more likely to separate from their banks, move to a lower -ranked bank , and face a d emotion in their future positions when their portfolios experience a negative credit shock ( e.g. , defaults, corporate bankruptcies , and rating downgrades) . On the other hand, most corporate accou ntants are not intentionally involved in financial misreporting and are very likely pressure d by top managers to conduct the wrongdoings . For example, Feng et al. (2011) suggest that even CFOs involved in financial fraud s are under pressure from CEOs , rather than intentionally maximizing their own financial benefit s from equity incentives by manipulating earnings. Due to the information asymmetry regarding the direct responsibility of financial misreporting, the labor market may not penalize corp orate accountants. Additionally, corporate accountants who are not involved or unaware of the financial misreporting 6 Fee and Hadlock (2004) focus on the turnover of non -CEOs and find that the turnover of non -CEOs is positively associated with the CEO dismissals. Likewise, I expect that rank -and -file employees could experience higher turnover if there is management team restructuring. 10 are unlikely culpable for financial misreporting . Employers may prefer employees who went through financial misreporting but do not directly patriciate in the misreporting. Prior studies examine how the past negative experience helps managers perform better in the future. For example, Bernile et al. (2017) find that CEOs who witness the downside of disasters act more conservatively in firm policies, such as lower levera ge, higher cash holding, and fewer acquisition activities. As a result, I may not observe any adverse labor market outcomes for corporate accountants in financial restatement firms. 11 3.!DO CORPORATE ACCOUNTANTS LEAVE BEFORE RESTATEMENTS ANNOUNCEMENTS? Prior studies on non -executive employees suggest they have superior and valuable insider information about their employersÕ future performances . For example, Babenko and Sen (2015) find that the aggregate purchases of firm stocks by non -executive employees can successfully predict future stock returns. Such predicti ve power of non -executive stock purchases is more pronounced for firms with stronger information asymmetry. Hales et al. (2017) also suggest that employeesÕ assessment s of outlook s for their employers published in Glassdoor.com are informative about their firms Õ earnings surprises, management forecasts, and goodwill impairment s. In the context of financial misreporting , corporate accountants possess more first -hand information about financial misreporting than external parties. Corporate accountants are involved in preparation of financial information and they regularly interact with their external auditors. According to the 2016 ACFE report , a financial statement fraud is more likely to be committed by a group of insiders than by a single individual. Since top managers are more likely to mastermind financial misreporting , the perpetration of financial misreporting at least needs some corporate accountants involved to falsify financial reporting systems . For example, an investigation by the board o f directors after the WorldCom s candal suggests that dozens of employees knew about the WorldCom fraud before the fraud was revealed (Pulliam 2003) . Even corporate accountants who are not directly involved in the wrongdoing may observe various signs of misreportin g. For instance , Michael Vines, a former bookkeeper at HealthSouth, noticed the fraudulent accounting transaction s of fixed assets before the fraud was revealed . As corporate accountants in restatement firms might be aware of the ongoing financial misreporting , managers in fraud firms have 12 incentives to persuade employees to withhold information from the public. Call et al. (2016) provide indirect evide nce that financial fraud firms grant rank -and -file employees more stock options during fraud periods to discourage them from whistle -blowing to regulators. If an accountant is aware of any financial misreporting , she/he need s to make a cost -benefit analysis of whether to stay or jump the sinking ship. Corporate accountants could have three possible options : (1) Stay with the firm. The financial incentive of additional stock options may help managers to keep corporate accountants silent about the ongoing misreporting (Call et al. 2016). (2) Blow the whistle to regulators . Dyck et al. (2010) show that firm employees report about 17% of whistle -blowing cas es in their whistle -blowing sample. However, in 82% of whistle -blowing cases by employees , the individuals allege that they experience adverse outcomes (e.g. , fired, altered responsibilities) as a result of bringing the fraud to light. (3) Leave the firm. There could be several reasons motivating the proactive departure of corporate accountants. First, financial instability could motivate corporate accountants to leave their employers. As resta tement firms often experien ce financial distress in restatement periods, corporate accountants may choose to leave for more financially stable employers. Job seekers, as outsiders, refrain from Ôboarding a sinking boatÕ by avoiding working for financially distressed firms (Brown and Matsa 2016) . Second, c areer concerns may also encourage corporate accountants to leave to avoid any stigma on thei r reputations. Fahlenbrach et al. (2017) find that an anticipation of adverse outcomes motivates independent directors to depart from their board to protect their reputations. Gao et al. (2017) also document abnormal turnover of directors before fraud s are discovered and before lawsuits are filed. Prior studies on the proac tive turnover of executives and directors suggest that executives and directors successfully minimize labor markets penalties by jumping a sinking ship. 13 For example, Semadeni et al. (2008) show t hat executives who Ôjump shipÕ by changing employers before bank failures suffer less severe labor market outcomes than those executives who stay with the failed banks. Dou (2017) suggests that directors who leave before negative events ( e.g., lawsuits and restatements) experience lesser loss of directorships than directors who leave after the events . Following the same logic, I argue that corporate accountant s could proactively leave their employers to protect their reputation. For example, former Enron accountant Sherron Watkins claimed that the best way to avoid reputational loss is to change jobs as soon as possible (Beenen and Erisman 2007) . Last, problematic work ethic in restatement firms could motivate corporate accountants to leave their employers. Employees are willing to work for firm s that share the same work ethics and values through the self -selection process in labor markets (Jones 1995; Chakravarthy et al. 2014). During the restatement period, a corporate accountant could observe the damaged work ethic or culture within the firm and voluntarily leave for employers consistent with her/his work ethic. However, if corporate accountants perceive that financi al incentives outweigh any potential penalty (e.g. reputation damage) after financial misreporting is revealed to the public, it is possible to observe no abnormal turnover of corporate accountants before financial misreporting is revealed . Among corporate accountants, internal auditors conduct various internal audit procedures in areas with the highest risk and thus could be more likely to detect financial misreporting internally than other corporate accountants. For example, Cynthia Cooper, the former vice president of internal audit at WorldCom, and her team identified some suspicious accounting entries before the eruption of the WorldCom scandal. Ege (2015) suggests that the quality of internal audit function is negatively associated with the likelihood of management misreporting . 14 Because of the information advantage and direct responsibility for detecting financial misreporting , internal auditors are more likely to proactively leave than other accountants in restatement periods . 15 4.!DATA 4.1!Restatement Firm Sample I do not focus on firms subject to the SEC Accounting and Auditing Enforcement Release s (AAER firms) due to the severity of financial fraud s. Corporate accountants might omit employment histories with AAER firms in public profiles. Instead, I focus on the severe financial restatement cases 7. Since restatements are less severe than AAER case s, any labor market outcome from restatements should be near the lower bound of labor market penalties for corporate accountants involved in financial fraud s8. Additionally, financial restatement s are more common than financial frauds, such as AAER. So, t he inferences from financial restatement sample could be generalized to common financial misreporting cases (i.e., more likely encountered by corporate accountants in their daily work) and have more important implications for corporate accountants . Following Desai et al. (2006) , I start with all restatements by firms currently traded on NYSE or NASDAQ from the Audit Analytics non-reliance restate ment feed . To collect complete information on job transitions, I require restatement firms remain public . To construct the treatment and control periods used in the later difference -in-differences test s, I also require that each restatement begins after 2004 and ends before 2014. Figure 1 plots the three restatement periods (e.g., pre -restatement, r estatement, and post -restatement) constructed from the beginning date and the 8-K filing date of a restatement . The time span of each period is the same as the time span between the beginning date and the 8 -K filing date of a restatement . 7 Prior studies document negative consequences of restatements for firms and v arious parties (e.g., top managers, directors, external auditors). For example, restatement firms on average experience -3% market return in a 3 -day window around the restatement announcement after the Sarbanes Oxley Act (Burks 2011) . In ternal parties experience higher turnover and worse job prospects after restatements (e.g., Srinivasan 2005; Desai et al. 2006; Karpoff e t al. 2008). External auditors are also more likely to dismissed by the board of directors after clientsÕ restatements (Hennes et al. 2014) . 8 In later tests, I show that the main results are mainly driven by the more severe financial restatement cases. So, the results from financial restatements might be generalized to the most severe cases like financial frauds. 16 In addition , I exclude restatements by non -U.S. firms or firms in financial/utility industries. Since larger firms could have more employees available on LinkedIn , I exclude firms with a stock price less than $5 in the most current period or firms as non -accelerated filers . To remove unintentional restatements , I exclude those restatements made because of clerical application errors , as these restatements are mostly technical errors (Bens et al. 2012) 9. I also exclude those restatements due to SAB No.108, the SECÕs 2005 letter regarding leases, pro forma restatements for mergers , or newly discontinued operations (Hennes et al. 2014) . To focus on severe restatement s, I keep only restatements with negative effect s on net income s or equities (Dao et al. 2012; Hobson et al. 2012) . After removing 11 firms with no employee s on LinkedIn , my final restatement firm sample consist s of 205 unique restatement firms. The detailed sample selection of restatement firm s is described in Table 1 . Table 2 Panel A reports the descriptive statistics of firm characteristics . On average, the restatement firms in my sample have $ 1,801 million in reported total assets. T heir return on assets is close to zero at the beginning of each restatement period . About 26% (35 %) of CEOs (CFOs) leave their firms during the three restatement periods. The average time span between the beginning date and the 8-K filing date of a restatement is 2.6 years. This restatement duration allows me to observe notable turnover s of individual employees. On average, a restatement firm Õs net income over total asset s is restated 1% down. The average three -day commutative abnormal return around the 8-K filing date of a restatement is -2%. Table 2 Panel B reports the distribution of restatement ending year s. The restatement s in my final sample are distributed even ly across 9 These restatements due to technical errors are less likely involved with intentional manipulation by managers. Therefore, I do not expect any significantly adverse consequences for corporate accountants from these restatements. I could use these restatements due to technical err ors to do a falsification test. However, to reduce the significant cost of data collection, I choose to do cross -sectional tests based on the severity of restatements in my final sample. 17 years. Table 2 Panel C present s the industry distribution of restatement firms based on the Fama -Fench 12 industry classifications. 4.2!Individual Employee Sample LinkedIn serves as a comprehensive and public available data source to gather corporate accountants Õ employment information. Ac cording to the 2014 Social CPAs survey, LinkedIn ranks No.1 in the social media used by corporate accountants. 10 Recent studies also use LinkedIn to identify corporate accountants in S&P 1500 firms for an examination of how corporate accountants affect audi t quality and auditor choices (Bird, Ho, Li, et al. 2015; Bird, Ho, and Ruchti 2015; Chen et al. 2015) 11. After construct ing the restatement firm sample , I search for individual employees who work in accounting, finance, or HR function s on LinkedIn in June 2016 . I require an employee who currently or previously worked for the restatement firms. My initial search on LinkedIn relies on the function classification by LinkedIn and results in 74,740 individual employees . Using the years when an empl oyee joins and departs from her or his employer, I require that an employeeÕ s employment period with restatement firms has an overlap with the three restatement periods (e.g., pre-restatement, restatement, and post -restatement) . I refine the classification of individual employee s based on the last titles each employee has with the restatement firms according to the classification by Accounting Jobs Today . Specifically , I classify an employee as working in the accounting function if he or she holds a job title with a set of keywords related to corporate accountants .12 Similarly, I classify an employee in the HR functio n if he or she holds a job title 10 http://accountingdisruptors.com/wp -content/uploads/2015/11/2014Soc ialCPAsSurveyFindings.pdf 11 Several other accounting and finance papers also use LinkedIn as a new data source to examine the human capital investment of internal employees, how the skill sets (e.g., social skill, industry experience) of individuals affect their performance and the revolving door practices in credit ratings (Chen et al. 2015; Li et al. 2016 ; Jiang et al. 2018) . 12 The keywords used to identify accountants are as follows: accounting, accountant, reporting, controller, receivable, payable, collection, billing, asset, inventory, revenue, consolidation, compliance, tax, audit, internal control, SOX, 18 with a set of keywords related to the human resources function .13 In later tests, I define an employee as working in the internal a udit function if he or she holds a job title with the following keywords: audit, internal control, SOX , Sarbanes ÐOxley . The corporate accountants who are not in the internal audit function are classified as other corporate accountants . Finally, I exclude individuals wh o work in temporary positions or an internship, or hold a position as CEO, CFO , or board member . This selection procedure results in a sample of 24,673 corporate accountants and HRs in the 205 restatement firms. The detailed selection process of the individual employee sample is described in Table 3 . To validate my keyword s used to refine the classification, I plot the top 50 keywords in individual employeesÕ skill sets of corporat e accountants and HRs in Figure 2 . The top three keywords in corporate accountants Õ skills sets are accounting, financial analysis, and financial reporting. The top three keywords in HR sÕ skills sets are human resources, employment relations, and onboarding. These keywords are consistent with the main tasks of each function . Table 4 reports the demographic characteristics of individuals with available information from their public profession al profiles on LinkedIn . Employees without education al information are excluded from this table . I classify the seniority of each employee b ased on the last job title with her or his former employer .14 For other corporate accountan ts (i.e., corporate accountants, excluding internal auditors ), the average age of a junior (senior) employee is 32.10 (37.67 ).15 About 60% of junior employees are female while only 49% of senior employee s are female for Sarbanes ÐOxley, fin ance, financial analyst, financial planning, treasurer, acquisition, risk manager, financial planning, portfolio. These keywords are based on the common titles classified by Accounting Jobs Today . 13 The keywords used to identify HR employees are as follows : human resources, recruiter, benefits, employees, staffing, workforce, compensation, talent acquisition, payroll, employee relations, labor. 14 An employee is classified as a senior employee with the following keywords: senior, sr, supervisor, head, manage r, mgr, director, controller, treasurer, executive, vice president, vp. 15 Age measures an individualÕs age in the most recent year with her/his employer. The age is inferred from the year when an individual gets her/his Bachelor degree, graduates from high school s or gets her/his first job (Chevalier and Ellison 1999) . 19 other accountants .16 Typically , a junior corporate accountant has a B achelor degree while a senior corporate accountant has a degree higher than Bachelor degree .17 Only a bout 2% (3%) of junior (senior) other accountants have an MBA degree. However, a bout 5% (10%) of junior (senior) other accountants have a CPA license . Internal auditors have a smaller population than other accountants . Like other accountants , about 3% (3%) of junior(senior) internal audit ors have an MBA degree. However, internal audit ors are more likely to have a CPA license than other accountant s. The HR function has significantly more female employees (77% at the junior level and 68% at the senior level) than the accounting function. Consistent with the main task s of HRs , the HR sample has a lower percentage of MBA degree and CPA license .18 Table 5 reports the descriptive statistics of employee turnover of internal auditors, other accountants, and HRs across the three restatement periods ( e.g., pre-restatement, restatement, and post -restatement) at the firm level . The total number of corporate accountants is similar to that in Bird et al. ( 2015), which also collect s information about corporate accountants who work for S&P 1500 firms from LinkedIn . On average, a restatement firm has about 3 1 accountants at the beginning of a pre-restatement period. However, the total number of other accountants gradually increase s over time. The internal audit ors and HRs have a similar trend in population across the three restatement periods. To adjust for the size effect of each group, I define the turnover rate as the number of employee turnover s in each period over the total employee number at the beginning of each period . 16 Female indicates an individualÕs gender based on his/her first name. 17 Highes t Degree is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. 18 The HR function has its own professional certification. For example, PHR (Professional in Human Resources) or SPHR (Senior Professional in Human Resources) are co mmon certifications by Human Resources Certification Institute. Because this study mainly focuses on the labor market outcomes of accountants. I do not provide detailed summary statistics of the professional certification of HR sample. 20 In Figure 3 , I compare the overall turnover rates and senior turnover rate s of accounting and HR functions across three restatement periods. Panel A suggest s that compared to H Rs, corporate accountants experience a greater increase in turnover rate from pre -restatement periods (20%) to post -restatement periods (41%). However, corporate accountants , relative to HR s, do not experience a greater increase in turnover from pr e-restatement periods to restatement periods. In Panel B, I partition all employee s into subgroups based on the seniority of a job position. I find that compared to senior HR s, senior corporate accountants experience a greater increase in turnover rate s from pre -restatement periods (13%) to post -restatement periods (25%), but not from pre-restatement periods to restatement periods . I partition corporate accountants into internal auditor s and other accountants in Figure 4. Panel A suggest s that compared to HRs , both internal auditors and other accountants experience a greater increase in overall turnover rate from pre -restatement periods to post -restatement periods. However, other accountants do not experience a greater increase in overall turnover from pr e-restatement periods to restatement periods than HRs do. In contrast, internal auditors do experience a greater increase in overall turnover from pr e-restatement periods (19%) to restatement periods (36%). This univariate evidence suggests that internal auditors may proactively depart from their employer s when the financial misreporting is under going. The comparison of senior turnover rate s across three functions is similar to the comparison of overall turnover rate s. Overall, Figure s 3 and 4 provide initial evidence that corporate accountants , relative to HRs , experiences a greater increase in turnover rate s after restatements . In addition, the turnover rates of internal auditors are higher than those for other accountants and HRs in restatement periods. Multivariate regression tests in the next section will formally test the statistical difference between the turnover rates across different functions after control ling for other firm factors affecting employee turnover . 21 5.!RESEARCH DESIG N 5.1!Firm-Level Turnover Rates In my first test, I adopt a difference -in-differences research design to examine the abnormal turnover rate of corporate accountants at the firm level . I use HRs as a control group for corporate accountants to control for firm -specific factors that affect employee turnover trend s within the same firm . I choose the HR function for two reasons: (1) The HR function is not directly related to restatements . So, HRs should be less affected by the negative reputation penalty from financial restatement s. The turnover trend of the HR function capture s the normal employee turnover in restatement firms 19. (2) The HR function provides administrative services (e.g., staffing, training) to firms and generally exists for all firms , and the HR turnover trend provides a generalizable benc hmark for all restatement firms . Based on the beginning date and the 8-K filing date of a restatement , I construct three periods for each restatement: pre -restatement ( i.e. , a period of the same duration as the restatement duration before the beginning date of a resta tement ), restatement (i.e. , a period between the beginning date and the 8-K filings date of a restatement) and post -restatement (i.e. , a period of the same duration as the r estatement duration after the 8-K filing date of a restatement ).20 The pre -restatement period serve s as a benchmark period to measure the turnover rate of each function. The dependent variable is measured as the number of turnover employees during each period over the total employee number at the beginning of each period. The first -difference within the same firm remove s common time-invariant firm -specific factors tha t affect the turnovers of 19 I assume that the change in turnover of HR function captures serves as a benchmark for the change in turnover rate of employee who perform administrative functions within the same firm. Although turnover rates of HR are not identical to those of corporate accountants, the difference -in-difference research designs only requires a parallel trend in turnover rates of HRs and corporate accountants. The falsification tests in Section 6.6 confirm the parallel trends. 20 I measure the restatement duration as the time span between the beginning date and the 8 -K filing date of each restatement. 22 both corporate accountants and HRs . The second -difference remove s time-invariant function -specific factors that affect employee turnovers . The difference -in-differences measure of turnover rate s captures the abnormal turnover of the accounting function relative to the turnover of the HR function from a pre-restatement period to a post -restatement period . My estimation model can be written as follows: !"#$%&'# ()*+,-.%/01,2344%"$05$6 1,7.%/08344%"$05$6 9999999999999999999999999999999991:;%$0#%< /1='># 1?$@"/0#A1B0>0' 99999999999999999999999999999999C Post indicates that a firm -period observation is for a post -restatement period. Accounting indicates that a firm -period observation is measured for the accounting function. The main variable of interest is the interaction term Accounting* Post . The coefficient ,7 captures the abnormal turnover rate of corporate accountants from a pre-restatement period to a post -restatement period , related to that of HRs. In the estimation model, I control for firm size, measured as the log of total assets at the beginning of each restatement period. ROA con trols for the profitability of a firm at the beginning of each restatement period. Sales Growth , measured as the increase in sales over sales in the prior year at the beginning of each period, controls for the expanding speed of operating activities (Brazel et al. 2009) . I also include CEO and CFO turnover s in the same period to control for the management team change (Fee and Hadlock 2004) . I winsorize all continuous variables in my sample at the 1 st and 99 th percentile, respectively. Year fixed effects c ontrol for macroeconomic factors affecting the labor market in a given year. State fixed effects control for local labor market factors. Industry fixed effects control for industry -specific factors affecting the labor market in a given year. The standard errors are clustered by restatement firm s. See Appendix A for detailed variable definitions. 23 To examine the abnormal turnover in the restatement period, I use an estimation regression similar to the one for the post -restatement period , as follow s: !"#$%&'# ()*+,-D"#5$6 1,2344%"$05$6 1,7D"#5$6 8344%"$05$6 999999999999999999999999999999999999999999991:;%$0#%# 1?$@"/0#A1B0>0' 99999999999999999999999999999999999E The same set of control variables, year, state and industry fixed effects are included . 5.2!Individual -Level Promotion Outcome The second labor market outcome I examine is the subsequent career prospect, which is measured as the relative rank of the next position to the former position when individual employees leave their former employers (Fee and Hadlock 2004 ; Desai et al. 2006 ). Since compensation information is not available for an individual employee from public sources , I am not able to examine the effect of restatements on corporate accountantsÕ wealth. As a higher position is likely associated with a higher compensation level, I rely on the ranks of old and new positions to indirectly assess the labor market outcome. I use the position titles to classify the employees into a three -rank hierarchy (Barri os 2017) . The classification is based on Parker and LynchÕs 2015 Salary Guide for Accounting and Finance Professionals .21 Based on this three -rank hierarchy, an employee has a promotion if she or he moves from a lower rank position to a higher rank position . To examine the impact of restatement s on the promotion prospect , I compare the promotion outcomes of corporate accountants and HRs who leave restatement firms using a difference -in-differences specification. As the Rank 3 employees already have t he highest rank in my hierarchy, 21 The Rank 1 group represents the starting or junior level at the firm (including clerk, bookkeeper, accountant, human resources assistant). The Rank 2 group represents the middle level at the firm (including manager, senior accountant, human resources supervisor). The Rank 3 group represents the most senior level employees at the firm (including director, executive, controller, vice president) 24 my promotion test s only include the Rank 1 and Rank 2 employees (Griffin et al. 2018) . My estimation model for the post -restatement period can be written as follows: .#%F%05%$ ()*+,-.%/01,2344%"$05$6 1,7.%/08344%"$05$6 99999999999999999999999999999999999999999991:;%$0#%# 1?$@"/0#A1B0>0' 999999999999999999999999G The dependent variable is Promotion , which reflects whether an employee moves to a higher rank position i n the new employer when she/he le aves her/his former employer. Post indicates that an employee leaves du ring a post -restatement period. Accounting indicates that an employee is in the accounting function. I control for Tenure at the former employer, measured as the number of years that the employee stays with her/his former employer. I also control the gender of an individual employee to correct any potential gender bias in the labor market ( Barber et al. 2017; Fang and Huang 2017) . Highest Degree controls for the highest education degree obtained by an employee. Lastly, I control for whether an employee has an MBA degree or a CPA license . I winsorize all continuous variables in my sample at the 1 st and 99 th percentile, respectively. Year, state and i ndustry fixed effects a re included to control for macro economic factors , local labor market factors and industry -specific factors affecting both corporate accountants and HR sÕ promotion prospects. See Appendix A for detailed variable definitions. The regression model is estimated using an OLS regression for ease of the interpretation of the marginal effect. Untabulated r egression results from a probit regression model have similar inference s. I cluster t he standard errors by restatement firm s. The promotion tests for the restatement period s use the same set of control variables , as follows: .#%F%05%$ ()*+,-D"#5$6 1,2344%"$05$6 1,7D"#5$6 8344%"$05$6 99999999999999999999999999999999999999991:;%$0#%# 1?$@"/0#A1B0>0' 99999999999999999999999999999999H 25 6.!EMPIRICAL RESULTS 6.1!Turnover Rates in Post -Restatement Periods I compare the turnover rate s of accounting and HR functions from pre -restatement period s to post -restatement period s at the firm level in Table 6 . Column (1) suggests that the average turnover rate of HRs increases approximately 16 .8% from pre -restatement period s to post -restatement period s. In pre -restatement periods, the overall turnover rate of corporate accountants is 3.1 % lower than that of HRs. The coefficient on Post*Accounting is about 4 .5%, which is significant at the 10% significance level. This evidence suggests that corporate accountants , relative to HRs, experience a greater increase in the overall turnover rate . To investigate the cross -sectional difference of turnover rates for junior and senior employees, I partition the overall turnover rate based on the seniority of employees. I do not find that junior corporate accountants experience a higher increase in turnover than that of junior HRs in Column (2 ). Column (3) suggests that senior corporate accountants experience a higher increase (4.1%) in turnover than senior HRs . This evidence is consistent with the notion that senior employees , compared to junior employees, may be more informed about the financial misreporting and held more accountable , or they experience more negative spillover. The employee turnover rates are positively associated with CEO/CFO turnover in the same period across all three specifications . T his result suggests that restatement firms do change the whole employee structure as a team (Fee and Hadlock 2004) . To further investigate dif ferential outcomes for internal auditors and other accountants, I partition the corporate accountant s in Table 7 . Panel A presents the OLS regression results of comparing the turnover rate s of internal auditors and other accountants from pre -restatement period s to post -restatement period s. Column (1) suggest s that the increase in the overall turnover rate is not statistically different between internal auditors and other accountants . When I focus on 26 the senior level in Column (2), I find that senior internal auditors , relative to other senior accountants, experience an abnormal increase (5 .3%) in turnover rates between pre -restatement periods and post -restatement periods . This evidence is consistent with the idea that senior internal auditors seem to fail to fulfill their responsibilities and experience a more severe outcome in terms of a higher job turnover . In add ition, I use the median values of three severity measures of restatement s (i.e., CAR [-1,1], Restatement Duration, Income Restated Percentage ) to classify the restatements into more severe restatements and less severe restatements within my sample (Hen nes et al. 2008; Srinivasan 2005).22 The cross -sectional results in Table 7 Panel B indicate that only in firms with a more severe restatement do senior internal auditors , relative to other senior accountants, experience an abnormal increase in turnover rates . Table 7 Panel C presents the cross -sectional OLS regression results of comparing senior turnover rates at the firm level in the post -restatement periods by CEO change s. I find that the abnormal turnover of internal auditors in post -restatement periods are mainly driven by the restatement cases with a CEO change. 6.2!Promotion Outcomes in Post -Restatement Periods In addition to job turnover , I compare the promotion outcome s of corporate accountants and HRs who leave in pre-restatement and post -restatement periods in Table 8 . Column (1) uses the full sample including both senior and junior employees. The coefficient on Post suggest s that HRs are more likely to be promoted to a higher rank position in post -restatement peri ods. This evidence is consistent with the notion that HRsÕ promotion prospect s are not affected by the restatement s. The coefficient on Post*Accounting is -8.2% and statis tically significant at the 1% 22 CAR [ -1,1] measures the 3-day cumulative abnormal return around the restatement announcement date adjusting for value -weighted market return. Restatement Duration measures the years between the begin date and the announcement date of a restatement. Income Restated Percentage meas ures the restated income deflated by total asset. 27 level, suggesting that corporate accountants , relative to HR s, experience an abnormal decrease of 8.2% in their promotion likelihood. Like executive managers and board of directors , corporate accountants suffer a worse career prospect after restatements . By partitioning the full sample based on the seniority o f a position , I find an abnormal decrease in promotion likelihood for both senior and junior corporate accountants . A lthough junior employees are less likely to be directly involved in the perpetration of financial misreporting, this evidence suggests that they do experience a negative reputation spillover in the subsequent career prospect . I further partition corporate accountants into internal auditor and other accountants to examine any additional penalty for internal auditors in Table 8 Panel B . Column s (1), (2 ), and (3) suggest that internal auditors , relative to other accountants , do not experience a greater decrease in their promotion likelihood between pre -restatement periods and post -restatement period s.23 6.3!Turnover Rates in Restatement Periods In Table 9, I compare the turnover rate s of corporate accountants and HRs from pre-restatement period s to restatement periods at the firm level. Column (1 ) suggests that the average turnove r rate of the HR group increase s approximately 8.3% from the pre -restatement period to the restatement period. In pre -restatement periods, the corporate accountants Õ turnover rate is 3.0 % lower than the HR groupÕs turnover rate. However, the coefficient on During*Accounting is about -1.3% but not statistically significant at the 10% significance level. This evidence sug gests that corporate accountants , relative to HRs, do not experience a higher turnover in restatement period s. Focusing on senior turnover rates in Column (3) , I also fail to find that senior corporate accountants 23 In untabulated results, internal auditor s, relative to HRs, still experience an abnormal decrease in their promotion likelihood between pre -restatement periods and post -restatement periods. 28 experience a higher increase (-1.2%) in turnover than senior HRs do from pre -restatement periods to restatement periods . Motivated by the designated role of internal auditors to be more likely to detect financial misreporting , I further partition corporate accountants into internal auditor s and other accountants in Table 10. Panel A presents the OLS regression results of comparing the turnover rate s of internal auditors and other accountants between restatement per iods and pre -restatement periods at the firm level . Column (1) suggest s that the increase (9.4%) in the overall turnover rate is statistically higher for internal auditors . Column (2) compares the turnover rate s of senior internal auditors to that of other senior accountants . I also find that senior internal auditors experience a greater increase in turnover (8.1%) than that of other senior accountants . This evidence suggests that internal auditors may proactively leave because of their direct responsibility for overseeing internal control activities or an information advantage to detect restatements . Table 10 Panel B presents the cross -sectional tests on the OLS results from Table 10 Panel A . I find the greater increase in turnover of internal aud itors, relative to other accountants at the senior level in restatement periods , is only found in firms with a more severe restatement. Table 10 Panel C presents the cross -sectional OLS regression results of comparing senior tur nover rates at the firm level in restatement periods by CEO change s. I find that the abnormal turnover of internal auditors in restatement periods are mainly driven by the restatement cases with a CEO change. 6.4!Promotion Outcomes in Restatement Periods In Table 11 Panel A , I compare the promotion outcome s of corporate accountants and HRs who leave in pre-restatement periods and restatement period s. Column (1) use s the full sample including b oth senior and junior employees . I do not find that corporate accountants , relative to HRs, experience a diminished promotion prospect if corporate accountants leave in restatement 29 periods. I further partition the full sample into senior and junior subsamples. Column (2) and (3) also suggest no worse promotion prospe ct for either senior or junior corporate accountants. Results from Table 10 suggest that internal auditors proactively leave their employers in restatement periods. To examine whether the labor market can see through the proactive departure of internal au ditors , I compare the promotion outcome s of internal auditors to those of other accountants in Table 11 Panel B . Columns (1) Ð (3) suggest that internal audit ors, relative to other accountants, do not experience an y abnormal decrease in the promotion likelihood.24 Overall, these results suggest that corporate accountants , relative to HRs do not experience a worse promotion prospect if they leave before restatement announcements. In contrast to Dou (2017), the labor market for corporate accountants does not see through the proactive departure of corporate accountants and hence does not impose any labor market penalty in terms of a worse promotion prospect. Thi s evidence partially confirms the claim of former Enr on accountant Sherron Watkins that a proactive departure could avoid reputation damage. 6.5!Demotion Outcomes in Post -Restatement and Restatement Periods Similar to my promotion tests, I use whether an employee finds a demoted position after she or he moves to a new employer to examine the effect of restatement s on employeesÕ demotion likelihood. In Table 12, I do not find a significant increase in the demo tion likelihood for corporate accountant relative to HRs in both post -restatement and restatement periods. The empirical results do not support the notion that the labor market penalizes the employees by increasing their demotion likelihood. One potential explanation is that demotions in position tiers are too severe 24 In untabulat ed results, internal auditor s, relative to HRs, do not experience an abnormal decrease in their promotion likelihood between pre -restatement periods and restatement periods. 30 for rank -and -file employees. The diminished promotion prospect could better capture the human capital loss in the upside prospect for rank -and -file employees. 6.6!Falsification Tests of Parallel As sumption s My diff erence -in-differences tests rely on the parallel assumption that corporate accountants and HRs have a similar trend in job turnover and promotion prospects in pre -restatement periods. I use a falsification test to validate the parallel assumption (Roberts and Whited 2013) . Specifically , I examine whether there is a statistical difference in the trend of job turnover and promotion prospects of cor porate accountants and HRs from a pseudo period (a period before the pre-restatement period ) to a pre -restatement period . In Table 13 Panel A, I do not find a statistical difference in the senior turnover rate s of internal auditors, other accountants, and HRs from a pseudo period to a pre -restatement period . Similarly, I fail to find a statistical difference in the promotion likelihood of internal auditors, other accountants, and HRs from a pseudo period to a pre -restatement period in Table 13 Panel B . Thes e two falsification tests validate the parallel assumptions used in my difference -in-differences tests . 31 7.!CONCLUSION This study examines the impact of restatements on the labor market outcomes for corporate accountants . Using employment histories disclosed in corporate accountants Õ public profiles on LinkedIn , I examine corporate accountantsÕ turnover around restatements and their promotion prospect in a new job. Using a difference -in-differences research design , I find that corporate accountants , relative to HR s, experience a higher turnover and a worse promotion prospect after restatements are announced . The increase in turnover is mor e pronounced for senior internal auditors and in more severe restatement cases. Second, I find that only senior internal audit ors, relative to other senior accountants and senior HRs, experience a higher turnover but not a worse promotion prospect before restatements are announc ed. I acknowledge several limitations in this study. Fir st, my sample may not capture an exhaustive sample of corporate accountants in restatement firms and the information collected from LinkedIn profiles is voluntarily disclosed by individual employees . However, i f individual employees selectively omit unfavorable working experiences in their public LinkedIn profiles, the omission of such ÒstainedÓ working experience will bias against my findings. Second, I can not differentiate a forced turnover and a voluntary turnover based on employment histories from LinkedIn . Therefore, my empirical tests on turnover rates capture the overall job turnover 25. Last, I cannot observe whether an individual employee directly participates in financial misreporting . So, it is difficult to infer the cross -sectional differenc e in labor market outcomes for corporate accountants with different involvement in restatements . However, the evidence from the 25 Regardless of voluntary and forced turnover, I argue that individual employees s till bear significant costs when they change jobs (e.g., relocation cost). 32 subsamples of senior and junior employees suggests employees with more responsibilities in financial reporting suffer more adver se labor market outcomes . This study makes two contributions to the literature. First, I provide the first large -sample evidence that corporate accountants in restatement firms experience negative labor market outcomes in the forms of a higher turnover rate and a worse promotion prospect. This empirical evidence has important policy implications for regulators to encourage corporate accountants to be whistle -blowers and rev eal ongoing financial misreporting . Second, the literature on prediction of finan cial misreporting relies on various financial metrics (Brazel et al. 2009; Dechow et al. 2011; Hobson et al. 2012) . The abno rmal turnover of internal auditors before the revelation of restatements could provide a labor market signal t o predict financial misreporting . 33 APPENDIX 34 Appendix A: Variable Definitions Variable Definition Data Source Turnover Rate The number of turnover employees during each period over the total employee number at the beginning of each period. LinkedIn Senior Turnover Rate The number of senior turnover employees during each period over the total employee number at the beginning of each period. LinkedIn Junior Turnover Rate The number of junior turnover employees during each period over the total employee number at the beginning of each period. LinkedIn Total Assets The log of total asset s at the beginning of each period . Compustat ROA Net income deflated by total asset s at the beginning of each period . Compustat Sales Growth The increase in sales over sales in the prior year at the beginning of each period. Compustat CEO Change 1 indicates whether there is a CEO change during each period. Audit Analytics CFO Change 1 indicates whether there is a CFO change during each period. Audit Analytics CAR [ -1, 1] 3-day cumulative abnormal return around the restatement announcement date adjusting for value -weighted market return. CRSP Restatement Duration The number of years between the begin date and the 8-K filing date of a restatement . Audit Analytics Income Restated The restated income number deflated by total asset s. Audit Analytics Promotion 1 indicates that an individual employee moves to a higher rank position in the new employer when she/he leaves her/his former employer LinkedIn Demotion 1 indicates that an individual employee moves to a lower rank position in the new employer when she/he leaves her/his former employer LinkedIn Age An individualÕs age in the most recent year with her/his employer and is inferred from the year when an individual gets her/his Bachelor , graduates from high school or gets her/his first job. LinkedIn Tenure An individualÕs tenure with the former employer. LinkedIn Female 1 indicates an individual is female. The gender is inferred from her/his first name. LinkedIn Highest Degree Highest Degree is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. LinkedIn CPA 1 indicates that an individual has a CPA license. LinkedIn MBA 1 indicates that an individual has an MBA degree. LinkedIn Pre 1 indicates that the firm period observation is a pre -restatement period. Audit Analytics During 1 indicates that the firm period observation is a restatement period. Audit Analytics Post 1 indicates that the firm period observation is a post -restatement period. Audit Analytics 35 Appendix B: Figures Figure 1: Restatement Period Construction This figure plots the restatement periods constructed from the begin ning date and the 8-K filing date of a restatement . The time span of each period is the same as the time span between the beginning date and the 8-K filing date. 36 Figure 2: Top 50 Keywords in Employee sÕ Skill Sets This Figure shows the top 50 keywords included in the individual employeesÕ skill sets. A larger font size represents a higher frequency. Panel A shows the top 50 keywords in accountant sÕ skill sets. Panel B shows the top 50 keywords in HRsÕ skill sets. Panel A: Top 50 Keywords in Corporate Accountants Õ Skill Sets Panel B : Top 50 Keywords in HRs Õ Skill Sets 37 Figure 3: Turnover Rate s of Corporate Accountants and HRs This figure compares the turnover rates of corporate accountants and HRs across pre -restatement, restatement, and post -restatement periods. Panel A: Overall Turnover Rate Comparison Panel B: Senior Turnover Rate Comparison 20412439010203040Turnover Rate (%) Corporate Accoutant HRPre-Restatement Post-Restatement 20302433010203040Turnover Rate (%) Corporate Accoutant HRPre-Restatement Restatement 132512190510152025Turnover Rate (%) Corporate Accoutant HRPre-Restatement Post-Restatement 1318121805101520Turnover Rate (%) Corporate Accoutant HRPre-Restatement Restatement 38 Figure 4: Turnover Rate s of Internal Auditors, Other Accountants , and HRs This figure compares the turnover rates of internal auditors, other accountants and HRs across pre -restatement, restatement, and post -restatement periods. Panel A: Overall Turnover Rate Comparison Panel B: Senior Turnover Rate Comparison 204119422439010203040Turnover Rate (%) Other Accountant Interal Auditor HRPre-Restatement Post-Restatement 202919362433010203040Turnover Rate (%) Other Accountant Interal Auditor HRPre-Restatement Restatement 132592712190102030Turnover Rate (%) Other Accountant Interal Auditor HRPre-Restatement Post-Restatement 1318921121805101520Turnover Rate (%) Other Accountant Interal Auditor HRPre-Restatement Restatement 39 Appendix C: Tables Table 1: Firm Sample Selection This table describes the sample selection process of restatement firms. I start with all unique restatement announcements by firms currently traded on NYSE or NASDAQ from the Audit Analytics non -reliance restatement feed. To construct the pre -restatement period and post -restatement period, I require that each restatement begins after 2004 and ends before 2014. In addition , I exclude those restatements by non -U.S. firms or firms in financial/utility industries. Since larger firms could have more employees available on LinkedIn , I exclude firms with a stock price less than $5 in the most current period or firms as non-accelerated filers . To remove unintentional restatements , I exclude those restatements because of clerical application errors as these restatements are technical errors. I also exclude those restatements due to SAB No.108, the SECÕs 2005 letter regard ing leases, pro forma restatements for mergers or newly discontinued operation s. To keep more severe restatements, I only keep restatements with negative effects on income or equity . Last I remove 11 firms with no individual employee found on LinkedIn . Obs. Unique r estatements beginning after 2004 and ending before 2014 by firms currently traded on NYSE or NASDAQ 2559 Less r estatements: By non -US firms -305 By firms in financial/utility industry -553 By firms with a stock price < $5 in most current periods or as not -accelerated filers -610 With a time span between the 8 -K filing date and the begin ning date less than 1 year -159 With i nsufficient pre -restatement period s as control period s -66 Due to clerical application errors, SAB No.108, the SEC Õs 2005 letter regarding leases, pro forma restatements for mergers or newly discontinued operations -122 With n o adverse effect on income or equity -503 Subtotal r estatements 241 Unique firms 216 Unavailable employee information o n LinkedIn -11 Final firm sample 205 40 Table 2: Firm Level Descriptive Statistics Panel A reports the descriptive statistics for variables at the firm level . Total Assets is measured at the beginning of each period. Size is the log of total assets at the beginning of each period. ROA is net income deflated by total asset at the beginning of each period. Sales Growth measures the increase in sales over sales in the prior year at the beginning of each period. CEO Change indicates whether there is a CEO change during each period. CFO Change indicates whether there is a CFO change during each period. Restatement Duration is the years between the begin date and the 8-K filing date of a restatement . Income Restated is the restated income number deflated by total assets. CAR [ -1, 1] is the 3-day cumulative abnormal return around the 8 -K filing date of a restatement adjusting for value -weighted market return. Panel B presents the distribution of restatement ending years by f irms in the final sample. Panel C presents the industry distribution of firm s in my sample based on the Fama -French 12 industry classification. Panel A: Descriptive Statistics of Firm Level Variables Mean SD 25% Median 75% Total Assets (Millions) 1,801 3,441 190 590 1,667 Total Assets (Log) 6.64 1.48 5.51 6.60 7.64 ROA 0.01 0.14 -0.02 0.03 0.07 Sales Growth 0.25 1.59 -0.01 0.08 0.21 CEO Change 0.26 0.44 0.00 0.00 1.00 CFO Change 0.35 0.48 0.00 0.00 1.00 Restatement Duration 2.57 1.35 1.36 2.18 3.20 Income Restated -0.01 0.05 -0.01 -0.01 -0.00 CAR [ -1,1] -0.02 0.08 -0.05 -0.00 0.02 Panel B : Distribution of Restatement Ending Year s Year N Percentage 2004 8 3.90 2005 13 6.34 2006 20 9.76 2007 25 12.20 2008 18 8.78 2009 16 7.80 2010 27 13.17 2011 27 13.17 2012 28 13.66 2013 24 11.22 Total 205 100.00 Panel C : Industry Distribution of Restatement Firms Industry N Percentage Consumer Non -Durables 14 6.83 Consumer Durables 6 2.93 Manufacturing 28 13.66 Oil, Gas, and Coal Extraction and Products 5 2.44 Chemicals and Allied Products 6 2.93 Business Equipment 49 23.90 Telephone and Television Transmission 12 5.85 Wholesale, Retail, and Some Services 29 14.15 Healthcare, Medical Equipment, and Drugs 16 7.80 Others 40 19.51 Total 205 100 41 Table 3: Individual Sample Selection This table describes the sample selection process of individual employees. I collect 74,740 individual profiles after an initial search for individuals in accounting, finance, or human resources functions who currently or previously worked for the 205 restatement firms. Based on a broad classification by Accounting Jobs Today , I classify an employee as a corporate accountant if she/he holds a job title w ith the following keywords: accounting, accountant, reporting, controller, receivable, payable, collection, billing, asset, inventory, revenue, consolidation, compliance, tax, audit, internal control, SOX, Sarbanes ÐOxley, finance, financial analyst, financ ial planning, treasurer, acquisition, risk manager, financial planning, portfolio . I classify an employee as an HR professional if she /he holds a job title with the following keywords: human resources, recruiter, benefits, employees, staffing, workforce, compensation, talent acquisition, payroll, employee relations, labor. In later test s, I define an employee as an internal auditor if she/he holds a job title with the following keywords: audit, internal control, SOX , Sarbanes ÐOxley . Observations . Individuals whose current or past employer is in the restatement firms sample 74,740 Less individuals with the following criteria : CEO, CFO, or board of directors (507) No overlap employment period with the three restatement periods (29,753) Non -Accounting or Non -HR functions (18,320 ) Temporary or intern position (1,4 87) Final Individual Sample 24,673 Corporate Accountant 16,803 Other Accountant 15,262 Internal Audit or 1,541 Human Resources Professionals 7,870 42 Table 4: Demographic Characteristics of Individual Employees This table reports the demographic characteristics of individuals with available information. Employees without educational information are excluded from this table . An employee is classified as a senior employee with the following keywords: senior, sr, supervisor, head, manager, mgr, director, controller, treasurer, executive, vice president, vp, etc . Age measures an individualÕs age in the most recent year with her/his employer and is inferred from the year when an individual gets her/his Bachelor , graduates from high school or gets her/his first job. Female indicates an individualÕs gender based on her /his first name. Highest Degree is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. MBA indicates whether an individual has an MBA degree. CPA indicates whether an individual has a CPA license . Corporate Accountant Human Resources Other Accountant Internal Audit or Junior Senior Junior Senior Junior Senior Age 32.1 37.67 29.73 36.6 32.85 38.19 Female 0.6 0 0.49 0.48 0.42 0.77 0.68 Highest Degree 2.00 2.21 2.14 2.23 1.96 2.09 MBA 0.02 0.03 0.03 0.03 0.01 0.02 CPA 0.05 0.10 0.09 0.15 0.00 0.00 Observation s 4,425 6,739 484 630 2,776 3,151 Table 5: Firm Level Distribution of Employee Turnovers This table reports the descriptive statistics of employee turnover of other accountants, internal auditors, and HRs across three restatement periods (pre -restatement, restatement, and post -restatement) at the firm level . Other Accountant Internal Audit or Human Resources Pre. Dur. Post. Pre. Dur. Post. Pre. Dur. Post. No. Turnover 7.04 13.38 16.52 0.90 2.36 2.61 4.40 7.77 9.09 No. Senior Turnover 4.17 8.34 9.97 0.45 1.18 1.53 2.22 3.97 4.41 Total Employees 30.76 36.94 41.88 4.22 5.37 5.76 17.88 20.54 22.55 Overall Turnover Rate (%) 20.19 29.39 40.71 18.99 36.21 41.87 23.88 33.49 39.49 Senior Turnover Rate (%) 13.14 17.78 24.89 8.92 20.71 27.12 12.31 17.76 19.17 43 Table 6: Turnover Rates of Corporate Accountants and HRs in Post -Restatement Periods This table presents the OLS regression results of comparing the turnover rates of accounting and HR functions at the firm level in the post -restatement periods using a difference -in-differences specification. Overall Turnover Rate is measured as the number of turnover employees during each period over the total number of employees at the beginning of each period. Junior Turnover Rate is measured as the number of junior turnover employees during each period over the total number of employees at the beginning of each period. Senior Turnover Rate is measured as the number of senior turnover employees during each period over the total number of employees at the beginning of each period. Post indicates that the firm period observation is a post -restatement period. Accounting indicates that the turnover rate is measured for a ccounting function. Total Asset s is the log of total assets at the beginning of each period. ROA is net income deflated by total asset s at the beginning of each period. Sales Growth measures the increase in sales over sales in the prior year at the beginning of each period. CEO Change indicates whether there is a CEO change during each period. CFO Change indicates whether there is a CFO change during each period. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. (1) (2) (3) Overall Turnover Rate Junior Turnover Rate Senior Turnover Rate Post 0.168*** 0.080*** 0.085*** (5.18) (3.88) (3.38) Accounting -0.031* -0.036*** 0.006 (-1.68) (-2.98) (0.44) Post ! Accounting 0.045* -0.004 0.049** (1.68) (-0.20) (2.23) Total Assets 0.011 0.006 0.004 (1.43) (1.31) (0.74) ROA -0.069 0.006 -0.073 (-0.77) (0.13) (-1.24) Sales Growth -0.009 -0.007 -0.003 (-0.43) (-0.61) (-0.15) CEO Change 0.110*** 0.052*** 0.055*** (4.13) (2.80) (3.60) CFO Change 0.070*** 0.021 0.052*** (3.18) (1.42) (3.74) Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 745 745 745 Adjusted R -squared 0.272 0.169 0.194 44 Table 7: Turnover Rates of Internal Auditors and Other Accountants in Post -Restatement Periods Panel A presents the OLS regression results of comparing the turnover rates of internal auditors and other accountants at the firm level in the post -restatement periods using a difference -in-differences specification. Panel B presents the cross -sectional OLS regression results of comparing senior turnover rates at the firm level in the post -restatement periods using a difference -in-differences spe cification. Panel C presents the cross -sectional OLS regression results of comparing senior turnover rates at the firm level in the post -restatement periods by CEO change. Overall Turnover Rate is measured as the number of turnover employees during each pe riod over the total number of employees at the beginning of each period. Senior Turnover Rate is measured as the number of senior turnover employees during each period over the total number of employees at the beginning of each period. Post indicates that the firm period observation is within post -restatement periods. Audit indicates that the turnover rate is measured for the internal audit function. Total Asset s is the log of total assets at the beginning of each period. ROA is net income deflated by total asset s at the beginning of each period. Sales Growth measures the increase in sales over sales in the prior year at the beginning of each period. CEO Change indicates whether there is a CEO change during each period. CFO Change indicates whether there is a CFO change during each period. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. Panel A: Internal Auditor VS. Other Accountant (1) (2) Overall Turnover Rate Senior Turnover Rate Post 0.213*** 0.129*** (5.97) (4.63) Audit -0.015 -0.039* (-0.48) (-1.84) Post ! Audit 0.006 0.053* (0.13) (1.69) Total Assets 0.019** 0.007 (2.18) (0.95) ROA -0.129 -0.107 (-1.16) (-1.40) Sales Growth -0.022** -0.022** (-2.36) (-2.12) CEO Change 0.084** 0.055** (2.45) (2.13) CFO Change 0.055* 0.051** (1.85) (2.25) Year FE Yes Yes Industry FE Yes Yes State FE Yes Yes Observations 652 652 Adjusted R-squared 0.171 0.138 Panel B: Cross -Sectional Results by Severity of Restatements CAR[ -1,1] Restatement Duration Income Restate % (1) (2) (3) (4) (5) (6) More Severe Less Severe More Severe Less Severe More Severe Less Severe Post 0.070* 0.170*** 0.170** 0.060* 0.120*** 0.142*** (1.73) (4.32) (2.41) (1.97) (3.08) (3.30) Audit -0.093*** 0.002 -0.057 -0.022 -0.050* -0.030 (-4.22) (0.07) (-1.52) (-1.13) (-1.90) (-0.89) Post ! Audit 0.101** 0.017 0.098* 0.015 0.071 0.033 (2.36) (0.38) (1.94) (0.42) (1.56) (0.75) Controls Yes Yes Yes Yes Yes Yes Year/Industry/State FE Yes Yes Yes Yes Yes Yes Observations 303 349 332 320 318 334 Adjusted R -squared 0.214 0.081 0.154 0.171 0.177 0.090 45 Table 7 (contÕd) Panel C: Cross -Sectional Results by Severity of Restatements CEO Change (1) (2) Yes No Post 0.117 0.107*** (1.27) (3.19) Audit -0.115* -0.024 (-1.94) (-0.93) Post ! Audit 0.156** 0.028 (2.14) (0.67) Controls Yes Yes Year/Industry/State FE Yes Yes Observations 191 454 Adjusted R -squared 0.239 0.141 46 Table 8: Promotion Outcomes in Post -Restatement Periods Panel A presents the OLS regression results of comparing the promotion outcomes of corporate accountants and HR s in the post -restatement periods using a difference -in-differences specification. Panel B presents the OLS regression results of comparing the promotion outcomes of other accountants and internal auditors. The dependent variable is Promotion , which is measured as whether an individual employee moves to a higher rank position in the new employer when she/he leaves her/his former employer. Post indicates that an employee leaves during the post -restatement period. Accounting indicates that an employee is a corporate accountant . Audit indicates that an employee is an internal auditor. Tenure is the number of years that an employee stays with her/his former employer. Female indicates the gender of an employee. Highest Degree indicates the highest degree obtained by an e mployee and is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. MBA indicates whether an individual has an MBA degree. CPA indicates whether an individual has a CPA license. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. Panel A: Corporate Accountant VS. HR (1) (2) (3) Full Sample Senior Employees Junior Employees Post 0.067** 0.033 0.090** (2.46) (0.88) (2.12) Accounting 0.036 0.044 0.048 (1.63) (1.37) (1.42) Post ! Accounting -0.082*** -0.091** -0.073* (-2.85) (-2.17) (-1.77) Tenure 0.000 0.001 0.006** (0.14) (0.70) (2.44) Female -0.004 -0.000 -0.009* (-1.07) (-0.06) (-1.68) Highest Degree 0.031*** 0.038*** 0.040*** (3.69) (3.42) (3.41) CPA 0.053* 0.067** 0.091 (1.67) (1.98) (1.62) MBA -0.021 -0.017 -0.024 (-0.58) (-0.40) (-0.42) Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 4836 2195 2641 Adjusted R -squared 0.009 0.013 0.019 Panel B: Internal Auditor VS. Other Accountant (1) (2) (3) Full Sample Senior Employees Junior Employees Post 0.005 -0.031 0.029 (0.18) (-0.65) (0.67) Audit -0.015 -0.093 0.025 (-0.33) (-1.57) (0.38) Post ! Audit -0.021 0.042 -0.039 (-0.39) (0.61) (-0.49) Controls Yes Yes Yes Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 3168 1510 1658 Adjusted R -squared 0.017 0.020 0.041 47 Table 9: Turnover Rates of Corporate Accountants and HRs in Restatement Periods This table presents the OLS regression results of comparing the turnover rates of accounting and HR functions at the firm level in the restatement periods using a difference -in-differences specification. Turnover Rate is measured as the number of turnover employees during each period over the total number of employees at the beginning of each period. Senior Turnover Rate is measured as th e number of senior turnover employees during each period over the total number of employees at the beginning of each period. During indicates that the firm period observation is a restatement period. Accounting indicates that the turnover rate is measured for the accounting function. Audit indicates that the turnover rate is measured for the internal audit function. Total Assets is the log of total assets at the beginning of each period. ROA is net income deflated by total asset s at the beginning of each period. Sales Growth measures the increase in sales over sales in the prior year at the beginning of each period. CEO Change indicates whether there is a CEO change during each period. CFO Change indicates whether there is a CFO change during each period. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. (1) (2) (3) Overall Turnover Rate Junior Turnover Rate Senior Turnover Rate During 0.083*** 0.034** 0.047** (3.29) (2.54) (2.49) Accounting -0.030* -0.034*** 0.006 (-1.68) (-3.05) (0.46) During ! Accounting -0.013 0.001 -0.012 (-0.51) (0.08) (-0.64) Total Assets 0.027*** 0.012** 0.013** (2.96) (2.53) (2.07) ROA -0.006 0.020 -0.032 (-0.08) (0.58) (-0.62) Sales Growth 0.014** 0.019*** -0.007*** (2.06) (3.74) (-2.74) CEO Change 0.107*** 0.057*** 0.048** (3.60) (3.62) (2.28) CFO Change 0.093*** 0.051*** 0.045*** (3.78) (3.79) (2.73) Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 735 735 735 Adjusted R -squared 0.138 0.130 0.069 48 Table 10: Turnover Rates of Internal Auditors and Other Accountants in Restatement Periods Panel A presents the OLS regression results of comparing the turnover rates of internal auditors and other accountants at the firm level in the restatement periods using a difference -in-differences specification. Panel B presents the cross -sectional OLS regression results of comparing senior turnover ra tes at the firm level in the restatement periods by the severity of restatements. Panel C presents the cross -sectional OLS regression results of comparing senior turnover rates at the firm level in the restat ement periods by CEO change. Overall Turnover Rate is measured as the number of turnover employees during each period over the total number of employees at the beginning of each period. Senior Turnover Rate is measured as the number of senior turnover empl oyees during each period over the total number of employees at the beginning of each period. During indicates that the firm period observation is a restatement period . Audit indicates that the turnover rate is measured for the internal audit function. Total Asset s is the log of total assets at the beginning of each period. ROA is net income deflated by total asset s at the beginning of each period. Sales Growth measures the increase in sales over sales in the prior year at the beginning of each period. CEO Change indicates whether there is a CEO change during each period. CFO Change indicates whether there is a CFO change during each period. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. Panel A: Internal Auditor VS. Other Accountant (1) (2) Overall Turnover Rate Senior Turnover Rate During 0.084*** 0.045*** (3.58) (2.68) Audit -0.030 -0.047** (-0.94) (-2.20) During ! Audit 0.094** 0.081** (2.17) (2.37) Total Assets 0.048*** 0.022*** (5.63) (3.06) ROA -0.028 -0.048 (-0.36) (-0.82) Sales Growth 0.015** -0.007*** (2.29) (-2.63) CEO Change 0.063* 0.043 (1.94) (1.64) CFO Change 0.071** 0.061*** (2.42) (2.89) Year FE Yes Yes Industry FE Yes Yes State FE Yes Yes Observations 628 628 Adjusted R -squared 0.121 0.088 Panel B: Cross -Sectional Results by Severity of Restatements CAR[ -1,1] Restatement Duration Income Restate % (1) (2) (3) (4) (5) (6) More Severe Less Severe More Severe Less Severe More Severe Less Severe During 0.043* 0.049** 0.095*** 0.003 0.034 0.045* (1.72) (2.02) (2.66) (0.16) (1.35) (1.87) Audit -0.096*** -0.010 -0.067* -0.024 -0.056** -0.035 (-4.11) (-0.30) (-1.77) (-1.21) (-2.08) (-1.11) During ! Audit 0.122** 0.052 0.113** 0.029 0.112** 0.048 (2.34) (1.13) (2.04) (0.80) (2.19) (1.09) Controls Yes Yes Yes Yes Yes Yes Year/Industry/State FE Yes Yes Yes Yes Yes Yes Observations 298 330 321 307 301 327 Adjusted R -squared 0.106 0.058 0.084 0.091 0.116 0.088 49 Table 10 (contÕd) Panel C: Cross -Sectional Results by Severity of Restatements CEO Change (1) (2) Yes No During 0.032 0.070*** (0.56) (2.98) Audit -0.152** -0.038 (-2.63) (-1.45) During ! Audit 0.231*** 0.023 (3.00) (0.52) Controls Yes Yes Year/Industry/State FE Yes Yes Observations 169 453 Adjusted R -squared 0.094 0.113 50 Table 11: Promotion Outcomes in Restatement Periods Panel A presents the OLS regression results of comparing the promotion outcomes of corporate accountants and HRs in restatement periods using a difference -in-differences specification. Panel B presents the OLS regression results of comparing the promotion outcomes of accountants and internal auditors in the restatement periods. The dependent variable is Promotion , which is measured as whether an individual employee moves to a higher rank position in the new employer when she/he leaves her/his former employe r. During indicates that th e employee leaves during the restatement period. Accounting indicates that an employee is a corporate accountant. Audit indicates that an employee is an internal auditor. Tenure is the number of years that an employee stays with her/his former employer. Female indicates the gender of an employee. Highest Degree indicates the highest degree obtained by an employee and is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. MBA indicates whether an individual has an MBA degree. CPA indicates whether an individual has a CPA license. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. Panel A: Corporate Accountant VS. HR (1) (2) (3) Full Sample Senior Employees Junior Employees During 0.028 0.013 0.045 (1.03) (0.38) (1.18) Accounting 0.048* 0.058 0.065* (1.82) (1.62) (1.68) During ! Accounting -0.052 -0.049 -0.040 (-1.61) (-1.16) (-0.84) Tenure -0.000*** -0.004* -0.000*** (-2.58) (-1.86) (-3.25) Female -0.021*** -0.019*** -0.025*** (-5.03) (-3.38) (-4.27) Highest Degree 0.015 0.016 0.026* (1.53) (1.20) (1.66) CPA 0.029 0.058 0.012 (0.86) (1.24) (0.24) MBA -0.035 -0.056 -0.019 (-0.90) (-1.19) (-0.35) Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 5005 2317 2688 Adjusted R -squared 0.026 0.041 0.025 Panel B: Internal Auditor VS. Other Accountant (1) (2) (3) Full Sample Senior Employees Junior Employees During -0.027 -0.045 -0.012 (-1.38) (-1.38) (-0.38) Audit -0.017 -0.102* 0.032 (-0.37) (-1.86) (0.49) During ! Audit 0.064 0.103 0.029 (1.03) (1.48) (0.33) Controls Yes Yes Yes Year FE Yes Yes Yes Industry FE Yes Yes Yes State FE Yes Yes Yes Observations 2892 1390 1502 Adjusted R -squared 0.017 0.019 0.022 51 Table 12: Demotion Outcomes in Post -Restatement and Restatement Periods This table presents the OLS regression results of comparing the demotion outcomes of corporate accountants and HRs a difference -in-differences specification. The dependent variable is Demotion , which is measured as whether an individual employee moves to a lower rank position in the new employer when she/he leaves her/his former employer. Post indicates that an employee leaves during the post -restatement period. During indicates that the employe e leaves during the restatement period. Accounting indicates that an employee is a corporate accountant. Audit indicates that an employee is an internal auditor. Tenure is the number of years that an employee stays with her/his former employer. Female indi cates the gender of an employee. Highest Degree indicates the highest degree obtained by an employee and is measured in the following scales: 1=High School; 2=Bachelor; 3=Master or Above. MBA indicates whether an individual has an MBA degree. CPA indicates whether an individual has a CPA license. The standard errors are clustered by firms and t -statistics are reported in parentheses. , and indicate significance at the 10% , 5%, and 1% levels, respectively. Corporate Accountant VS. HR (1) (2) Post -Restatement VS. Pre -Restatement Restatement VS. Pre -Restatement Post 0.010 (0.28) Accounting -0.069** (-2.33) Post ! Accounting -0.012 (-0.34) During -0.049 (-1.51) Accounting -0.075** (-2.45) During ! Accounting 0.042 (1.13) Tenure 0.001 0.001 (0.75) (0.89) Female 0.001 0.006 (0.31) (1.15) Highest Degree -0.037*** -0.007 (-3.15) (-0.72) CPA -0.063** -0.035 (-2.48) (-1.02) MBA 0.049 0.037 (1.11) (0.70) Year FE Yes Yes Industry FE Yes Yes State FE Yes Yes Observations 3319 3163 Adjusted R -squared 0.020 0.011 52 Table 13: Parallel Assumptions in Pre -Restatement Periods Panel A presents the OLS regression results of comparing senior turnover rates of internal auditors , other accountants, and HRs at the firm level between the pre -restatement periods and the pseudo periods (i.e., a period before the pre -restatement period) . Panel B presents the OLS regression results of comparing promotion outcomes of internal auditors, other ac countants, and HRs between the pre -restatement periods and the pseudo periods. Senior Turnover Rate is measured as the number of senior turnover employees during each period over the total number of employees at the beginning of each period. Promotion is measured as whether an individual employee moves to a higher rank position in the new employer when she/he leaves her/his former employer. Pre indicates that the firm period observation is within the pre -restatement period. Accounting indicates that th e turnover rate is measured for other accountants . Audit indicates that the turnover rate is measured for the internal audit function. The standard errors are clustered by firm s and t -statistics are reported in parentheses. , and indicate significance at the 10%, 5%, and 1% levels, respectively. Panel A: Senior Turnover Rates of Internal Auditors, Other Accountants , and HRs in Pre -Restatement Periods (1) (2) Other Accountant VS. HR Internal Auditor VS. Other Accountant Pre -0.000 -0.028 (-0.01) (-1.26) Accounting 0.023 (1.06) Pre ! Accounting -0.017 (-0.69) Audit -0.041 (-1.57) Pre ! 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