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

34 Pages Posted: 27 Aug 2009 Last revised: 21 Oct 2010

See all articles by John (Xuefeng) Jiang

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: August 22, 2009

Abstract

This study examines the association between CFO equity incentives and earnings management. CEO equity incentives have been shown to be associated with accruals management and the likelihood of beating analyst forecasts (Bergstresser and Philippon, 2006; Cheng and Warfield, 2005). Because CFOs’ primary responsibility is financial reporting, CFO incentives should play a stronger role than those of the CEO. We find that the magnitude of accruals and the likelihood of beating analyst forecasts are more sensitive to CFO equity incentives than to those of the CEO. Our evidence supports the SEC’s new disclosure requirement on CFO compensation.

Keywords: CFO, Chief Financial Officer, compensation, earnings management, equity incentives

JEL Classification: M41, M43, M52

Suggested Citation

Jiang, John (Xuefeng) and Petroni, Kathy Ruby and Wang, Isabel, CFOs and CEOs: Who Have the Most Influence on Earnings Management? (August 22, 2009). Journal of Financial Economics (JFE), Vol. 96, No. 3, pp. 513-526, 2010. Available at SSRN: https://ssrn.com/abstract=1461842

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/

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