CFOs and CEOs: Who Have the Most Influence on Earnings Management?

31 Pages Posted: 17 Apr 2008  

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Isabel Yanyan Wang

Michigan State University

Multiple version iconThere are 2 versions of this paper

Date Written: April 15, 2008

Abstract

This study examines the association between CFOs' equity incentives and earnings management. CEOs' equity incentives have been shown to be associated with accruals management, beating earnings benchmarks, and earnings restatements (Bergstresser and Philippon, 2006; Cheng and Warfield, 2005; McAnally et al. 2007; and Burns and Kedia, 2006). Given that CFOs' primary responsibility is financial reporting, we argue that for a given level of equity incentives the CFO's incentives should play a stronger role than those of the CEO. Consistent with this prediction, we find that the magnitude of discretionary accruals and the likelihood of beating benchmarks and earnings restatements are more sensitive to the CFOs' equity incentives than to those of the CEO. Our evidence supports the SEC's new disclosure requirement on CFO compensation.

Keywords: compensation, earnings management, equity incentives, CFO

JEL Classification: M52, J33, M41, M43, M44, G34, G29, G38

Suggested Citation

Jiang, John (Xuefeng) and Petroni, Kathy R. and Wang, Isabel Yanyan, CFOs and CEOs: Who Have the Most Influence on Earnings Management? (April 15, 2008). Available at SSRN: https://ssrn.com/abstract=1121131 or http://dx.doi.org/10.2139/ssrn.1121131

John (Xuefeng) Jiang

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-3031 (Phone)
517-432-1101 (Fax)

HOME PAGE: http://www.msu.edu/~jiangj/

Kathy Ruby Petroni (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

Isabel Wang

Michigan State University ( email )

N233 Business Complex
Broad School of Business
East Lansing, MI 48824-1122
United States

HOME PAGE: http://www.msu.edu/~wangyany/

Register to support our free research

Register

Paper statistics

Downloads
1,082
rank
4,983
Abstract Views
4,663
PlumX