Chief Operating Officers and Real Earnings Management

56 Pages Posted: 18 Aug 2018 Last revised: 2 Jun 2019

See all articles by Cory A. Cassell

Cory A. Cassell

University of Arkansas

Andrew Doucet

University of Tennessee, Knoxville - Haslam College of Business

E. Scott Johnson

Virginia Tech - Pamplin College of Business

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Date Written: May 08, 2019

Abstract

Because Chief Operating Officers (COOs) are responsible for internal operations and because the use of real earnings management (REM) can have negative consequences on longterm operating performance, we posit that COO firms will be less likely to use REM to inflate near-term earnings. Consistent with this, we find that the level of REM is lower for firms with COOs in their list of named executive officers than for other firms. In subsequent tests, we investigate whether the use of REM varies based on whether COOs are dedicated operations officers or are likely to ascend to the Chief Executive Officer position. Using several approaches to classifying COOs as dedicated versus non-dedicated, we find that relative to firms with nondedicated COOs and firms without COOs, firms with dedicated COOs engage in less REM. Overall, our results suggest that the presence of a COO restricts the use of REM on average, and that this effect is driven by those COOs who are dedicated operations officers.

Keywords: chief operating officers, C-suite, earnings management, real earnings management, top management

Suggested Citation

Cassell, Cory A. and Doucet, Andrew and Johnson, E. Scott and Myers, Linda A., Chief Operating Officers and Real Earnings Management (May 08, 2019). Available at SSRN: https://ssrn.com/abstract=3234015 or http://dx.doi.org/10.2139/ssrn.3234015

Cory A. Cassell

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Andrew Doucet (Contact Author)

University of Tennessee, Knoxville - Haslam College of Business ( email )

Haslam Business Building
Knoxville, TN
United States

E. Scott Johnson

Virginia Tech - Pamplin College of Business ( email )

3114 Pamplin Hall
Blacksburg, VA 24060
United States
2394102250 (Phone)

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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