CFO/CEO-Board Social Ties, Sarbanes Oxley, and Earnings Management

Posted: 24 Jun 2011 Last revised: 19 Sep 2011

See all articles by Gopal V. Krishnan

Gopal V. Krishnan

Bentley University

K. K. Raman

The University of Texas at San Antonio

Ke Yang

Lehigh University

Wei Yu

Hunter College - City University of New York

Date Written: March 21, 2011

Abstract

Prior research suggests that the efficacy of a formally independent member of the board of directors could be undermined by social ties with the CEO. In this study, we examine the relation between CFO/CEO-board social ties and earnings management over the 2000-2007 time period. Our results suggest that CFO/CEOs picked more socially connected directors in the post-Sarbanes Oxley Act (SOX) time period (possibly as a way out of the mandated independence requirements). Our results also suggest a positive relation between CFO/CEO-board social ties and earnings management. Still, the increase in managerial/board risk aversion since SOX appears to have negated the effect of social ties on earnings management in the post-SOX period. Board independence and financial reporting quality remain topics of ongoing interest. The study is important in advancing our understanding of the role of social ties in earnings management.

Keywords: Social network, Earnings management, SOX, CEO, CFO

Suggested Citation

Krishnan, Gopal and Raman, K. K. and Yang, Ke and Yu, Wei, CFO/CEO-Board Social Ties, Sarbanes Oxley, and Earnings Management (March 21, 2011). Accounting Horizons, Vol. 25, No. 3. pp. 537-557, September 2011. Available at SSRN: https://ssrn.com/abstract=1870373

Gopal Krishnan (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

K. K. Raman

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Ke Yang

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
6107583684 (Phone)
6107586429 (Fax)

Wei Yu

Hunter College - City University of New York ( email )

695 Park Avenue
New York, NY 10065
United States

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