Abstract
It’s a fact that the CEO-CFO connection will be tighter if they have appointment relationships, which may lead to the disfunction of CFOs in regulating and supervising corporate financial activities. In order to explore the actual influence of CEO-CFO connections, we studied the correlation between CEO-CFO connectedness and the degree of corporate earnings management using the China listed company data from year 2005 to 2014. Results showed that CEO-CFO connections will increase corporate earnings management after considering the year fixed effect and the industry fixed effect. We control for corporate operation, CEO background and corporate governance factors. Further regressions are done using grouped samples divided by company size and ownership structure. The findings remain solid even after considering of numbers of robustness tests. Besides, we find that CEO duality and equity incentive will enhance the positive relationship.
Highlights
According to the Upper Echelon theory, background of executives could influence the corporate decision-making process (Hambrick and Mason, 1984) [1]
In order to explore the actual influence of CEO-CFO connections, we studied the correlation between CEO-CFO connectedness and the degree of corporate earnings management using the China listed company data from year 2005 to 2014
We mainly examine the impact of CEO/CFO relevance on corporate earnings management
Summary
According to the Upper Echelon theory, background of executives could influence the corporate decision-making process (Hambrick and Mason, 1984) [1]. Strong relationship correlation between CEO and CFO may cause lower financial principles and affect quality of accounting information Based on this understanding, we mainly examine the impact of CEO/CFO relevance on corporate earnings management. Heterogeneity will lead to a decline in the level of earnings management, so it has a positive impact on the company This paper chooses another perspective—the CEO and CFO tenure homogeneity, providing new evidence for the impact of the relationship between executives on corporate behavior. It has been found in the literature that both CEO and CFO terms can affect earnings management. We discuss the findings and draw some expectations for research and practice
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