CFOs and CEOs: Who have the most influence on earnings management?

This study examines the association between chief financial officer (CFO) equity incentives and earnings management. Chief executive officer (CEO) equity incentives have been shown to be associated with accruals management and the likelihood of beating analyst forecasts ( Bergstresser and Philippon,...

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Bibliographic Details
Published in:Journal of financial economics 2010-06, Vol.96 (3), p.513-526
Main Authors: (Xuefeng) Jiang, John, Petroni, Kathy R., Yanyan Wang, Isabel
Format: Article
Language:English
Subjects:
Accruals
Business management
Business organization
Business strategies
CFO
Chief executive officers
Chief Financial Officers
Compensation
Compensation Earnings management Equity incentives CFO
Correlation analysis
Earnings
Earnings management
Equity
Equity incentives
Executive compensation
Financial management
Leadership
Management research
Management techniques
Senior management
Studies
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Summary:This study examines the association between chief financial officer (CFO) equity incentives and earnings management. Chief executive officer (CEO) equity incentives have been shown to be associated with accruals management and the likelihood of beating analyst forecasts ( Bergstresser and Philippon, 2006; Cheng and Warfield, 2005). Because CFOs’ primary responsibility is financial reporting, CFO equity incentives should play a stronger role than those of the CEO in earnings management. We find that the magnitude of accruals and the likelihood of beating analyst forecasts are more sensitive to CFO equity incentives than to those of the CEO. Our evidence supports the Securities and Exchange Commission's (SEC) new disclosure requirement on CFO compensation.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2010.02.007