Chipping Away at Financial Reporting Quality

45 Pages Posted: 8 Nov 2015 Last revised: 5 Aug 2016

Lee Biggerstaff

Miami University of Ohio - Department of Finance

David C. Cicero

Harbert College of Business, Auburn University

Bradley A. Goldie

Miami University

Lauren C. Reid

Wake Forest University - Schools of Business

Date Written: August 1, 2016

Abstract

Chief financial officers are responsible for managing the financial reporting process. We test whether the quality of a firm’s financial reports is a function of the effort expended by the CFO. Using golfing records to measure leisure consumption, we first show that CFOs consume more leisure when they have lower economic incentives. We show further that high levels of leisure consumption by CFOs are associated with lower financial reporting quality. These results hold when using firm fixed effects and when using weather quality as an instrument for the amount of golf play, suggesting that the relationship is causal. Higher levels of leisure consumption are also associated with shorter conference calls with a more uncertain tone, suggesting that the qualitative content of firms’ communications also suffers when CFOs consume high levels of leisure. Finally, the effects of lower quality reporting are demonstrated by results linking CFO leisure with greater analyst forecast dispersion and weaker earnings response coefficients.

Keywords: Financial Reporting Quality, Agency Theory, Chief Financial Officers, CFOs, Incentive Compensation

JEL Classification: M4, M41, G3, G34

Suggested Citation

Biggerstaff, Lee and Cicero, David C. and Goldie, Bradley A. and Reid, Lauren C., Chipping Away at Financial Reporting Quality (August 1, 2016). Available at SSRN: https://ssrn.com/abstract=2687313 or http://dx.doi.org/10.2139/ssrn.2687313

Lee Biggerstaff

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

David C. Cicero (Contact Author)

Harbert College of Business, Auburn University ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

Bradley A. Goldie

Miami University ( email )

2029 Farmer School of Business
800 E. High Street
Oxford, OH 45056
United States
(513) 529-3657 (Phone)
(513) 529-6992 (Fax)

Lauren C. Reid

Wake Forest University - Schools of Business ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

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