Does Accounting and Financial Expertise in the C-Suite Aid or Mitigate Earnings Management?
31 Pages Posted: 15 Jun 2009
Date Written: March 11, 2009
Abstract
Despite the obvious impact of the CFO and the CEO on a firm’s financial statements, there is limited empirical evidence on whether and how the personal characteristics of senior management are associated with earnings management. We provide empirical evidence on the relation between earnings management and the accounting and financial expertise of these C-suite managers. For a sample of S&P 500 firms we find that CEOs and CFOs with accounting and financial expertise appear to manage earnings more aggressively than CEOs and CFOs without such expertise. We document greater earnings management by C-suite managers with accounting/financial expertise via accruals as well as real activities, such as overproducing goods, cutting back on discretionary spending, such as advertising and research and development expenses, manipulating sales and shifting of core expenses to special items. Our findings have important implications for boards of directors, members of the audit committee, investors and others.
Keywords: CFO, CEO, real earnings management, financial expertise, CPA
JEL Classification: M43, M41
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Detecting Earnings Management: A New Approach
By Patricia Dechow, Amy P. Hutton, ...
-
A Review of the Earnings Management Literature and its Implications for Standard Setting
-
Errors in Estimating Accruals: Implications for Empirical Research
By Daniel W. Collins and Paul Hribar
-
The Economic Implications of Corporate Financial Reporting
By John R. Graham, Campbell R. Harvey, ...
-
The Economic Implications of Corporate Financial Reporting
By John R. Graham, Campbell R. Harvey, ...
-
On the Association between Voluntary Disclosure and Earnings Management
By Ron Kasznik
-
Performance Matched Discretionary Accrual Measures
By S.p. Kothari, Andrew J. Leone, ...
-
The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors
By Ilia D. Dichev and Patricia Dechow