The influence of CEO and CFO power on accruals and real earnings management

Baker, Terry A.; Lopez, Thomas J.; Reitenga, Austin L.; Ruch, George W.

doi:10.1007/s11156-018-0711-z

Cited by 107 publications

(101 citation statements)

References 43 publications

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“…Scholars showed that SOX restrains overconfident CEOs (Banerjee, Humphery‐Jenner, & Nanda, ) and leads insider board members to provide less support for the CEO after financial misconduct (Gomulya & Boeker, ). Additionally, Baker, Lopez, Reitenga, and Ruch () noted that after the passage of SOX, powerful CEOs' preference for accrual earning management subsided mainly due to the increasing attention to managers' personal liability. As a result, SOX rendered the extraction of rents from minority shareholders more difficult (Duarte, Kong, Siegel, & Young, ) and resulted in the reduction of the option portion of CEOs' compensation (Banerjee et al, ).…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Figureheads or potentates? CEO power and board oversight in the context of Sarbanes Oxley

Haynes

Zattoni

Boyd

et al. 2019

Corporate Governance

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Research question/issue:We depart from studies that separately explore chief executive officers' (CEOs') and boards' effects on firm performance. Instead, we examine the direct relationship between CEO power and firm performance, and how board monitoring, and most importantly, a change in the regulatory environment alter the relationship. As such, our study jointly examines the role of both internal and external corporate governance mechanisms on the relationship between CEO power and firm performance. Research findings/insights:Our findings indicate that the negative main effect of a powerful CEO on firm performance is reduced by board monitoring and that the Sarbanes Oxley (SOX) legislation amplifies board monitoring and reduces the negative effects of CEO power.Theoretical/academic implications: Our study shows that agency relationships are grounded in social and institutional contexts. More precisely, our results suggest that CEO power is a function of CEO's relationship with the board, as CEO power and board monitoring interactions affect firm performance. Furthermore, they indicate that the CEO-board relationship is constructed within the legal institutional context, as the shock of SOX alters the effects that different combinations of CEO power and board monitoring have on firm performance. Practitioner/policy implications:Our results highlight to investors and directors that corporate boards should be designed in relation to the power of CEOs.In addition, they provide valuable guidance for policy-makers, suggesting that tight regulations may represent effective deterrents for some CEOs' misbehaviors and favor the alignment of interests with those of company owners. https://capture.udel.edu/media/Katalin+Takacs+Haynes+-+Video+Abstract/1_ ihl7pmhf

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Section: Theoretical Backgroundmentioning

confidence: 99%

Figureheads or potentates? CEO power and board oversight in the context of Sarbanes Oxley

Haynes

Zattoni

Boyd

et al. 2019

Corporate Governance

View full text Add to dashboard Cite

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“…30 Jiang et al (2010), for example, show 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. Further, Baker et al (2018) conclude that the power of the CEO relative to the CFO is an important factor in both the type and magnitude of earnings management.…”

Section: Does It Matter If the Cfo Is Part Of The Family?mentioning

confidence: 91%

Earnings Management around Founder CEO Re-appointments and Successions in Family Firms

2019

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This paper studies reappointment of a chief executive officer (CEO) and succession events in listed family firms with an incumbent family CEO. We explore whether family firms with a founder CEO are more likely to engage in earnings management preevent than other family firms. We find evidence of preevent upward earnings management for firms that reappoint their founder CEO but no for other family firms. These findings suggest that the costs and benefits from earnings management change around founder CEO reappointments in family firms.

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“…By focusing on a sample of material accounting manipulations, Feng et al (2011) show that CFOs do not manipulate financial reports for immediate personal financial gain, but rather because of pressure from CEOs. Baker et al (2019) find that CEO (CFO) power (proxied by board status and/or compensation) is associated with accruals (real) earnings management;…”

Section: Recent Research Bymentioning

confidence: 95%

“…Yet, there is limited empirical evidence on how the balance of power between the CEO and CFO influences the substitution effect between AEM and REM. Notable exceptions are the studies by Baker et al (2019) and Wu (2019), yet these only consider a subset of attributes (or power sources) that can influence the power of the CEO vis-á-vis the CFO. We add to this literature by developing a comprehensive measure of CFO resistance and by showing that resistant CFOs help constrain earnings management through real activities as well as through the means of discretionary accruals.…”

Section: Recent Research Bymentioning

confidence: 99%

Can CFOs Resist Undue Pressure from CEOs toManage Earnings?

Sainani¹

2020

Preprint

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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.

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The influence of CEO and CFO power on accruals and real earnings management

Cited by 107 publications

References 43 publications

Figureheads or potentates? CEO power and board oversight in the context of Sarbanes Oxley

Figureheads or potentates? CEO power and board oversight in the context of Sarbanes Oxley

Earnings Management around Founder CEO Re-appointments and Successions in Family Firms

Can CFOs Resist Undue Pressure from CEOs toManage Earnings?

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