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CFOs and CEOs: Who have the most influence on earnings management?

  • (Xuefeng) Jiang, John
  • Petroni, Kathy R.
  • Yanyan Wang, Isabel

This study examines the association between chief financial officer (CFO) equity incentives and earnings management. Chief executive officer (CEO) equity incentives have been shown to be associated with accruals management and the likelihood of beating analyst forecasts (Bergstresser and Philippon, 2006; Cheng and Warfield, 2005). Because CFOs' primary responsibility is financial reporting, CFO equity incentives should play a stronger role than those of the CEO in earnings management. We find that the magnitude of accruals and the likelihood of beating analyst forecasts are more sensitive to CFO equity incentives than to those of the CEO. Our evidence supports the Securities and Exchange Commission's (SEC) new disclosure requirement on CFO compensation.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 96 (2010)
Issue (Month): 3 (June)
Pages: 513-526

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Handle: RePEc:eee:jfinec:v:96:y:2010:i:3:p:513-526
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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  1. Bergstresser, Daniel & Philippon, Thomas, 2006. "CEO incentives and earnings management," Journal of Financial Economics, Elsevier, vol. 80(3), pages 511-529, June.
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