Abstract

http://ssrn.com/abstract=1019359
 
 

References (192)



 
 

Citations (2)



 


 



Internal Control Material Weaknesses and CFO Compensation


Rani Hoitash


Bentley University - Department of Accountancy

Udi Hoitash


Northeastern University

Karla M. Johnstone


University of Wisconsin - Madison - Department of Accounting and Information Systems

June 1, 2011

Contemporary Accounting Research, Forthcoming

Abstract:     
Boards of directors and compensation committees predominantly use financial measures reflecting executive managerial duties as inputs to executive compensation decisions. Yet, despite the fact that Holmstrom (1979) suggests that any readily available performance measure should be considered in executive compensation decisions, there is little research on the link between executive compensation and non-financial performance measures. We develop and test a model of chief financial officer (CFO) compensation with specific emphasis on the link between the disclosure of internal control material weaknesses (ICMW), a non-financial performance measure reflecting CFO fiduciary duties, and CFO compensation. Since internal controls are under the direct responsibility of the CFO, the disclosure of an ICMW reflects poorly on his/her performance. As a baseline, we find that ICMW disclosures lead to decreases in CFO compensation (bonus, equity, and total). Of greater interest, we find that CFOs at firms with stronger governance experience larger compensation decreases upon ICMW disclosures compared to CFOs at firms with weaker governance. In addition, CFOs at firms with greater costs of financial statement misreporting experience larger compensation decreases upon ICMW disclosures compared to CFOs at firms with lower costs of misreporting. Taken together, these results contribute to the relatively sparse literature on CFOs by illustrating the importance of CFO fiduciary duties and the interaction of those duties, in terms of firm governance and misreporting costs, with changes in CFO compensation.

Number of Pages in PDF File: 57

Keywords: CFO Compensation, Internal Controls, Corporate Governance, Sarbanes-Oxley Act of 2002

JEL Classification: J33, G34, G38, M49

Accepted Paper Series





Download This Paper

Date posted: October 7, 2007 ; Last revised: December 5, 2012

Suggested Citation

Hoitash, Rani and Hoitash, Udi and Johnstone, Karla M., Internal Control Material Weaknesses and CFO Compensation (June 1, 2011). Contemporary Accounting Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1019359

Contact Information

Rani Hoitash
Bentley University - Department of Accountancy ( email )
175 Forest Street
Waltham, MA 02452-4705
United States
Udi Hoitash (Contact Author)
Northeastern University ( email )
360 Huntington Ave.
Boston, MA 02115
United States
671-373-5839 (Phone)

Karla M. Johnstone
University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )
School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 7,303
Downloads: 1,726
Download Rank: 4,584
References:  192
Citations:  2
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.375 seconds