Some companies change CFOs or CEOs to regain "reputational capital" that may have been lost, to limit liability from possible classs-action lawsuits, or to help reverse market-value losses.

"On the other hand, there are also reasons why an earnings restatement may not lead to greater management turnover," the report says. They include the high cost in human capital that may result from replacing executives, and difficulties with internal controls if key individuals are dismissed, "unless the [accounting] problems are directly linked to those individuals." Further, if the reputational damage is judged to be minor, "the net benefits from replacing managers can be small."

The benefits associated with replacing the auditor also reflect whether a company needs to "regain its lost reputational capital or limit its liability exposure." Those costs can be large, however, and may include dealing with "steep learning curves" in replacing an auditor, and complications associated with the narrow choice among audit-firm candidates, especially when the field contains certain industry specialties.

But perhaps the most significant lesson of the study is that a careful reading of academic reports is always warranted.

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