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Why do CFOs become involved in material accounting manipulations?

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Listed:
  • Feng, Mei
  • Ge, Weili
  • Luo, Shuqing
  • Shevlin, Terry

Abstract

This paper examines why CFOs become involved in material accounting manipulations. We find that while CFOs bear substantial legal costs when involved in accounting manipulations, these CFOs have similar equity incentives to the CFOs of matched non-manipulation firms. In contrast, CEOs of manipulation firms have higher equity incentives and more power than CEOs of matched firms. Taken together, our findings are consistent with the explanation that CFOs are involved in material accounting manipulations because they succumb to pressure from CEOs, rather than because they seek immediate personal financial benefit from their equity incentives. AAER content analysis reinforces this conclusion.

Suggested Citation

  • Feng, Mei & Ge, Weili & Luo, Shuqing & Shevlin, Terry, 2011. "Why do CFOs become involved in material accounting manipulations?," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 21-36.
    • Handle: RePEc:eee:jaecon:v:51:y:2011:i:1:p:21-36
    DOI: 10.1016/j.jacceco.2010.09.005
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    More about this item

    Keywords

    Earnings quality; Accounting manipulation; CFO turnover; CEO power; Incentive compensation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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