CFOs and CEOs: Who Have the Most Influence on Earnings Management?
34 Pages Posted: 27 Aug 2009 Last revised: 21 Oct 2010
Date Written: August 22, 2009
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: Suggested Citation