Market Reaction to “Bad” News: Does the CFO Gender Matter? Evidence from Auditor Resignations

• In Event: Market Reactions to Audit Processes

Abstract

This study examines whether investors respond to the announcement of negative news differently conditional upon CFO gender. We use auditor resignation announcements as a proxy for negative news and use cumulative abnormal returns (CAR) following a standard event study method to measure market response. We find a statistically significant difference between firms with female CFOs that receive this negative news compared to firms with male CFOs. Although it appears at first glance that firms with female CFOs obtain positive CARS while firms with male CFOs obtain negative CARs, when testing whether each subsample is statistically different from zero we find that we cannot reject the null hypothesis with firms with female CFOs while we can with firms with male CFOs. We provide consistent evidence using univariate and multivariate tests after controlling for firm fundamentals, testing three different event windows around the announcement date as well as different market reaction methods, and using a full sample as well as a matched-pair sample. Our study concurs with many gender studies that show that gender diversity is an efficient corporate governance mechanisms where having females in the top executive position of a firm is considered desirable by the market and this positive perception is reflected by mitigating the negative consequences of the firm when receiving “bad news”.

Authors

• Claudia Hernandez, Florida International University

• Md Safayat Hossain, Florida International University

• Abhijit Barua, Florida International University