Abstract
AbstractWe examine whether Chief Financial Officer (CFO) internal power and career horizon are associated with accrual earnings management. Our proxy for the CFO's power within the firm is the ratio of the CFO's compensation to the CEO's compensation, and the CFO's career horizon is proxied by the number of years to retirement age. We find a negative relationship between the CFO's internal power and discretionary accruals. We do not find any evidence that CFO career horizon impacts accrual management. We further find that the negative association between CFO internal power and discretionary accruals is evident only for income‐decreasing accruals, and only in firms that meet or just beat earnings forecasts. The evidence implies that CFOs exert their influence to ratchet down large positive earnings surprises, thereby creating cookie jar reserves for future years.
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