CFO Effort and Public Firms' Financial Information Environment

50 Pages Posted: 8 Nov 2015 Last revised: 27 Mar 2019

See all articles by Lee Biggerstaff

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

We test the association between CFO effort and the quality of public firms’ financial information environments. We evaluate this relation using a measure of CFO leisure consumption – specifically, the amount of golf played – as an inverse proxy for effort. We find that CFOs consume more leisure (play more golf) when they have weaker equity-based incentives, and that high CFO leisure consumption is associated with lower earnings quality. This result holds with firm or CFO fixed effects and when using local weather quality to instrument for golf play, in support of a causal interpretation of the results. Higher CFO leisure consumption is also negatively associated with the informativeness of earnings calls and the accuracy of management guidance. Additionally, external monitors appear to be affected by the level of CFO effort as higher CFO leisure consumption is associated with greater analyst forecast dispersion and increased audit fees. Overall, the results suggest that CFOs respond to equity-based economic incentives, and that lower CFO effort weakens public firms’ financial information environment.

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., CFO Effort and Public Firms' Financial Information Environment (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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