Can CFOs resist undue pressure from CEOs to manage earnings?

Florackis, Chris and Sainani, Sushil
(2021) Can CFOs resist undue pressure from CEOs to manage earnings? JOURNAL OF CORPORATE FINANCE, 67. p. 101859.

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Building upon the premise that, under certain conditions, the ability of the Chief Executive Officer (CEO) to pressure the Chief Financial Officer (CFO) is limited, we develop a measure of CFO resistance that captures the ability of the CFO to resist undue pressure from the CEO to manage earnings. In doing so, we consider various sources of power for both the CEO and CFO, and a market setting where CFO resistance is perceived to be high. We find that firms with resistant CFOs are less likely to engage in earnings management than firms with non-resistant CFOs, ceteris paribus. Additionally, while confirming prior evidence that CEOs with strong incentives are more likely to manage earnings, we show that this effect is significantly less pronounced in the presence of resistant CFOs. Overall, our findings suggest that firms can improve the quality of financial reporting by creating conditions that enable CFO resistance.

Item Type: Article
Additional Information: Source info: 2020 AAA Annual Meeting Paper - Earnings Management Session
Uncontrolled Keywords: Chief Financial Officer, CFO, CEO, Relative Power, Resistance, Earnings Management, Discretionary Accruals
Depositing User: Symplectic Admin
Date Deposited: 13 Jan 2021 09:54
Last Modified: 18 Jan 2023 23:03
DOI: 10.1016/j.jcorpfin.2020.101859
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