Why do CFOs Become Involved in Material Accounting Manipulations?
University of Pittsburgh - Katz Graduate School of Business
University of Washington - Michael G. Foster School of Business
National University of Singapore
Terry J. Shevlin
University of California-Irvine
May 12, 2010
AAA 2009 Financial Accounting and Reporting Section (FARS) Paper
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.
Number of Pages in PDF File: 43
Keywords: earnings quality, accounting manipulation, CFO turnover, CEO power, incentive compensation
JEL Classification: G34, G38, M41, M43, K22
Date posted: September 1, 2008 ; Last revised: January 29, 2013