Why do CFOs Become Involved in Material Accounting Manipulations?
43 Pages Posted: 1 Sep 2008 Last revised: 29 Jan 2013
Date Written: May 12, 2010
This paper examines why CFOs become involved in material accounting manipulations. We find that while CFOs bear substantial legal costs when involved in accounting manipulations, these CFOs have similar equity incentives to the CFOs of matched non-manipulation firms. In contrast, CEOs of manipulation firms have higher equity incentives and more power than CEOs of matched firms. Taken together, our findings are consistent with the explanation that CFOs are involved in material accounting manipulations because they succumb to pressure from CEOs, rather than because they seek immediate personal financial benefit from their equity incentives. AAER content analysis reinforces this conclusion.
Keywords: earnings quality, accounting manipulation, CFO turnover, CEO power, incentive compensation
JEL Classification: G34, G38, M41, M43, K22
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