تأثیر قدرت CEO و CFO بر مدیریت سود واقعی
Abstract
1- Introduction
2- Background literature and hypothesis development
3- Research design
4- Sample selection and descriptive statistics
5- Empirical results
6- Conclusions
References
Abstract
In this study, we examine the effect of CEO and CFO power on both accruals and real earnings management (AEM and REM, respectively), and the extent to which CEO and CFO power mitigate the effect of one another on AEM and REM. We further examine whether the passage of the Sarbanes-Oxley Act (SOX) altered these effects. In the pre-SOX period, we find that AEM (REM) is greater when the CEO (CFO) is powerful relative to the CFO (CEO). In the post-SOX period, however, we find that the effect of relative CEO power on AEM subsides, whereas the effect of relative CFO power on REM persists. Additionally, we find evidence to suggest that powerful CFOs inhibit the AEM preferences of powerful CEOs in both the pre- and post-SOX periods. Finally, we find evidence to suggest that powerful CEOs inhibit the REM preferences of powerful CEOs in the pre-SOX period, but not in the post-SOX period. Collectively, our results suggest that the power of the CEO relative to the CFO is an important factor in the both the type and magnitude of earnings management.
Introduction
The purpose of this study is to further our understanding of the financial reporting implications of the CEO/CFO relationship by examining the influence of CEO power in the presence of CFO power on the financial reporting process. In so doing, we extend the prior literature in at least two ways. First, we provide evidence on the relationship between executive power (both CEO and CFO) and preferences for accrual earnings management (AEM), and real earnings management (REM). Second, we investigate whether CFO (CEO) power mitigates the influence of powerful CEOs (CFOs) in managing earnings (AEM or REM). Prior research suggests that CEOs and CFOs potentially have different preferences with respect to AEM and REM. CEOs are responsible for the strategic operations of the firm (i.e., current and future performance of the firm), while CFOs are ultimately responsible for the quality of financial reporting (Geiger and North 2006; Feng et al. 2011). Under the assumption that REM has negative consequences for the future performance of the firm (Bhojraj et al. 2009; Zang 2012), the presence of REM conflicts with the fiduciary responsibility of the CEO to the stakeholders of the firm. Similarly, assuming that AEM degrades the quality of financial reporting (Francis et al. 2008; Kim et al. 2012), the presence of AEM conflicts with the monitoring role of the CFO in the financial reporting process (Feng et al. 2011).