CFO Ethnicity and Financial Reporting Conservatism

The basis of this qualitative examination was incited by the notion that the perceptions of Seventh-day Adventist (SDA) Local Conference leadership substantially effects how the relationships of Chief Financial Officers (CFOs/Treasurers) and Chief Executive Officers (CEOs/Presidents) are viewed and function as members of their conference leadership team . In the past, Chief Financial Officers (CFOs) and Chief Executive Officers (CEOs) have historically functioned in their own professional executive compartments within their organizations rather than partnering together as cooperative teammates. The 21st Century’s, however, has forever changed how CFOs and CEOs relate to each other in the workplace due to the inception of governmental regulations called the Sarbanes-Oxley Act which was passed to address major corruption in large USA businesses and organizations, major non-compliance in accounting practices, extensive financial reporting fraud, institutional mis-management, board governance, CFO and CEO accountability. The impact of Sarbanes-Oxley has also influenced the relational practices of CFOs and CEOs in Seventh-day Adventist (SDA) conferences. A Mixed-Methods sequential exploratory research design was used with primary data for this study purposefully selected, collected and analyzed (coding, patterns, trends and themes) from qualitative focus group interviews with four local conference CFOs and CEOs, N=8, located in the United Stated of America (USA). Discussion and Conclusion are explored and disclosed, and the Implications of CFO and CEO relationship on organizational effectiveness, efficiency, and climate are presented.

This study focuses on a survey of chief financial officers (CFOs) in public firms in Japan concerning the following six points: the importance of the definition earnings quality; higher quality earnings; the determinants of earnings quality; prevalence, magnitude, and motivation of earnings management; accounting that influences earnings quality; and misrepresenting of earnings. The results are following: first, Japanese CFOs define earnings quality as earnings accurately reflecting economic reality, earnings accurately reflecting the results of operations, and earnings backed by cash flows, earnings sustainability, recurring, and consistent, and earnings reflecting long-term trend importance. Second, Japanese firms consider earnings that reflect consistent reporting choices over time as higher quality. They do not consider that earnings having accruals that are eventually realized as cash flow as higher earnings quality. Third, Japanese CFOs indicate that 30% of earnings quality is impacted by firm characteristics such as firm’s business model, industry, and macroeconomic conditions. Surprisingly, the influence of the board of directors is greater than the impact of their internal controls. Fourth, as for the determinants of earnings quality, CFOs consider that more than 70% of Japanese CFOs do not allow the discretion and that accounting standards limit their ability to report higher earning quality. Fifth, Japanese CFOs consider that higher earnings are influenced by accounting principles such as policies that match expenses with revenues and policies that rely on fair value accounting as much as possible. Sixth, CFOs themselves predict that 50% of Japanese firms use discretions and that they use 20% of earnings per share (EPS). Since there is inside and outside pressure to hit earnings benchmarks, Japanese firms possess the motivation to use earnings to misrepresent economic performance, Japanese managers see a red flag when generally accepted accounting principle’s earnings do not correlate with cash flow from operations.

PurposeScholars have investigated the association between executives' incentives and earnings management. Most of the extant literature focuses on equity executives' incentives, while most of the earnings management literature focuses on accrual earnings management (AEM), not real earnings management (REM). This paper investigates the association between chief executive officers’ (CEOs) and chief financial officer (CFOs) cash compensation and REM and explores who has more influence on REM, the CEO or the CFO.Design/methodology/approachThe authors use the data of all listed companies on the Shanghai and Shenzhen Stock Exchanges for the period from 2009 to 2017 and ordinary least squares regression as a baseline model and the Chow test to capture whether the CEO's or the CFO's cash compensation has more influence on REM. To address potential endogeneity issues, the authors use a firm-fixed effect technique and two-stage least squares regression.FindingsThe authors find that CEOs' and CFOs' cash compensation is significantly associated with REM, suggesting that paying non-equity compensation to the CEO and CFO is negatively associated with REM. The authors also find that the CFO's cash compensation has a more significant influence on REM than the CEO's cash compensation, suggesting that the CFO's accounting and financial knowledge strengthens his or her power on the quality of financial reporting.Practical implicationsThe study contributes to the literature of agency and contract theories by using cash-based compensation to provide strong evidence that CEO's and CFO's compensation is associated with REM. It also contributes to the earnings management literature by examining the effect of CEOs' and CFOs' cash compensation on earnings management using proxies for REM-related activities. The study also contributes to the institutional theory by providing empirical evidence on the governance role of executives' cash compensation in deterring REM. Finally, it is the first to examine the relationship between CEO's and CFO's cash compensation and REM, and the first to explore who is more influential regarding REM in emerging markets, the CEO or the CFO.Originality/valueAs a response to the call for investigations of the role of non-equity-based compensation in earnings management and the call to consider non-developed institutional contexts in governance research, this study extends prior studies by providing novel evidence on the relationship between CEOs' and CFOs' non-equity compensation and REM in China's emerging market. The study documents that the CFO has a greater influence on REM than the CEO does.

CFOs Reborn as Agents of Organizational Change

PurposeThis article seeks to explore success factors for integrating non‐family chief financial officers (CFOs) in family firms. The integration of non‐family CFOs is of great importance to family firms, as the CFO position is often the first management position in family firms for which non‐family managers are recruited. Moreover, non‐family CFOs can bring in valuable know‐how to the family firm and reduce the family firm's financial risk.Design/methodology/approachThe findings of this study are based on a qualitative field study in Austrian family firms. The views of non‐family CFOs, family managers, family board members, and non‐family CEOs were obtained through semi‐structured interviews.FindingsFour larger success factors for non‐family CFOs and five for controlling families were derived. The most important factor for non‐family CFOs that emerged from the study was that CFOs should be appreciative of the peculiarities of family firms. For controlling families, the results suggest that it is advisable to provide the non‐family CFO enough space to effectively conduct their job as well as respect the CFO's views.Practical implicationsBoth non‐family CFOs and controlling families may find the results presented in this article useful for creating a successful integration of non‐family CFOs in family firms. The success factors presented should be directly applicable for CFOs and controlling families.Originality/valueThis study is the first to investigate success factors for the integration of non‐family CFOs into family firms. Moreover, the results of this article may also be useful to the under‐researched field of non‐family managers in family firms in general.

Quality financial reports are very necessary for the smooth running of company operations. Companies need competent managers to improve the quality of financial reports. Incompetent managers can result in poor-quality financial reports, causing information asymmetry, damage to the company's reputation, and decreased investor confidence which can hamper the company's operational activities. This research aims to determine the effect of the Chief Financial Officer (CFO) who is a graduate of a reputable university and has international experience in the field of finance on the quality of financial reports. This research was conducted on 563 companies listed on the IDX from 2010 to 2019. Through regression Generalized Least Square (GLS), research finds that CFOs who graduate from reputable universities tend to be able to improve the quality of financial reports, but not CFOs who have international experience in the financial sector. This research shows that the CFO's educational background is very important in supporting the improvement of the quality of financial reports. Therefore, companies must pay attention to the CFO's educational background to support the manager's performance in improving the quality of financial reports.

Growing competition, increasing uncertainty, globalization, and deregulation made the nature of what companies do increasingly complex, and especially corporate accounting has become more and more important. This has put chief financial officers (CFOs) on the spot and into a key leading position. This paper commences by briefly reviewing extant empirical findings on CFO characteristics and their effects on firm processes and outcomes. Then, it investigates how the profession of the CFO has changed over time by analyzing changes in demographic characteristics and professional backgrounds of CFOs of German DAX companies over the past 20 years. The findings show changes in the CFO profession specifically with regard to CFO appointment age, professional experience (i.e., breadth of non-company and non-industry lifers, hiring of company and industry outsiders), and educational background (i.e., the role of educational level). Furthermore, the results for DAX CFOs are compared to data pertaining to the CFOs of midcap companies (i.e., MDAX). The respective analyses indicate a noticeable difference with regard to appointment age, professional experience (i.e., work experience, percentage of company-lifers, international experience), and educational level.

Using accruals as a proxy for financial reporting quality, Peni and Vahamaa (2010) and Barua, Davidson, Rama, and Thiruvadi (2010) provide evidence that female Chief Financial Officers (CFOs) are more moral than male CFOs. Using 2,048 U.S. firm-year propensity score matching samples from 1997-2014, this stereotyped relationship is re-examined by empirically testing the likelihood of Real Earnings Management (REM) by female CFOs. Overall, the results show that female CFOs are, on average, 6% more likely to manipulate REM than male CFOs. One possible explanation for these results is that female CFOs face significant pressure (e.g., age, wage or diversity) and/or are motivated by earnings management incentives (e.g., avoiding reporting losses, meeting earnings benchmarks or beating analysts’ forecasts). The likelihood of REM by female CFOs is weakened after including pressure on female CFOs into the regression models. Surprisingly, the results suggest that female CFOs who beat analysts’ forecasts by more than one cent are less likely to manipulate REM. This latter result suggests that the documented association between female CFOs and REM might be triggered by poor firm performance. Further analysis suggests that while female CFOs are significantly associated with high firm performance, female CFOs who manipulate REM are significantly associated with low firm performance, especially cash flow from operations. This study contributes to prior literature on diversity, organizational behavior, and earnings management in several ways. It suggests that individual behaviors in organizations are more complex than they appear. Early childhood and heredity may not be valid structural determinants of organizational behavior.

This study explores the relationship between the overseas experience of Chief Financial Officers (CFOs) and digital transformation in Chinese listed companies, using data from 2009 to 2022. Grounded in upper echelons theory, the research examines how CFOs’ international experience influences corporate strategy and digital innovation. The results demonstrate that CFOs with overseas experience significantly drive digital transformation within firms. This finding is robust, surviving multiple tests, including instrumental variable analysis to address endogeneity and various robustness checks. Further analysis reveals that while CFOs’ overseas work experience has a strong positive impact on digital transformation, their overseas education experience has an insignificant effect. The study also identifies research and development (R&D) intensity and environmental, social, and governance (ESG) practices as key mediators that enhance the relationship between CFOs’ overseas experience and digital transformation. These findings suggest that CFOs with international experience contribute strategic vision and a global perspective, fostering innovation and sustainability within the firm. By linking CFOs’ overseas experience with innovation and sustainable development strategies, this research contributes to the theoretical understanding of how strategic leadership impacts digital transformation. The study recommends that companies prioritize the overseas experience of CFOs to gain competitive advantages and create long-term value.

PurposeThe purpose of this paper is to explore the unique and challenging relationship between the chief financial officer (CFO) and chief information officer (CIO) in the public sector.Design/methodology/approachIn this paper, the authors operationalize the CFO–CIO relationship using upper echelon theory (UET) and propose an extension to it by introducing relationship effectiveness and role perception constructs. Applying a configurational approach to paired survey data, the authors use fuzzy set qualitative comparative analysis to examine both joint and individual role paths to success.FindingsThe CFO is ultimately responsible for financial reporting, disclosure and financial decision-making; however, regulatory changes in the accounting domain have resulted in the increased use of information technology (IT) thereby bringing the CIO to the forefront of the accounting information discussion. Thus, an improved understanding of the CFO/CIO relationship can have a direct impact on how accounting information is captured and analyzed. The authors find that CFO and CIO proximity can often increase the likelihood of an effective relationship. On an individual level, an ambidextrous approach to strategic value and cost-effectiveness is key to both CFO and CIO success.Research limitations/implicationsThis study extends current models of top management team relationships by examining work proximity and role perception in the context of UET. It was conducted within the context of Canadian government and post-secondary education. The authors believe the findings can be generalized for the public sector in general; however, its applicability in the private sector, where the role of the CFO is broader, is uncertain.Practical implicationsThe findings identify an opportunity for both accounting (financial) and IT communities to develop education within the context of their respective professional bodies to enhance this special relationship.Originality/valueRecent regulatory changes in the accounting domain have brought an increased need for IT and therefore increased interaction between the CFO and CIO. This study focuses on the unique relationship between the CFO and CIO, which has a direct impact on accounting functions and highlights the importance of both the CFO and CIO having an ambidextrous approach to strategic value and cost-effectiveness if they want to be successful. In addition, it demonstrates that the relationship between the CFO and CIO is important, but more important for the success of the CIO than the CFO.

This study answers Vazquez’s (J Bus Ethics 150(3):691–709, 2016) call for more research focused on the intersection between family firms and business ethics. We investigate two contextual factors potentially affecting the ethical reporting of chief financial officers (CFOs): a firm’s social ties to the controlling family and the CFOs’ perceived relationship quality with the CEO. We test our hypotheses by examining the financial reporting behavior of Chinese CFOs who work at (1) family or nonfamily businesses and in (2) private or public firms. Results of this study advance our understanding of social and contextual factors that may compromise CFOs' reporting behavior in family firms (Suh et al., J Bus Ethics, 2018, https://doi.org/10.1007/s10551-018-3982-3 ). This research also suggests that failure to distinguish between public and private companies may bias the results of studies that examine family firms.

Aim: This paper examines the role of Chief Financial Officers (CFOs) on the boards of Maltese Listed Entities (MLEs). The paper explores how the corporate boards of MLEs prefer to involve CFOs and evaluates the views of board members about the benefits and drawbacks of CFO participation. The study analyzes the broader implications for corporate governance, including the perspectives of directors, managers, andshareholders. Methodology: We adopted a mixed-method approach using semi-structured interviews with 10 board members (BMs) and 16 CFOs from MLEs. In addition, we collected written responses from three BMs and two CFOs, resulting in a total of 31 participants. Results: MLEs tend to favor CFOs as regular board attendees rather than full board members, aiming to ensure robust financial oversight while preserving the independence of managerial oversight. Factors such as the financial literacy of the board and thecomplexity of the business influence this preference. Boards sometimes appoint CFOs following coolingoff periods, and participants expressed concerns about potential conflicts between current and former CFOs, as well as the challenge of balancing board duties with operational responsibilities. Nevertheless, participants viewed CFO board participation positively. Participants believe CFOs contribute to strategicalignment, deeper managerial insight, and enhanced shareholder confidence when they participate on boards. While small shareholders expressed minimal concern, institutional investors placed a stronger value on CFO involvement. Originality / value: This study fills a gap in the corporate governance literatureby examining the specific contributions and oversight roles of CFOs within the boards of Multinational Listed Entities (MLEs), an area that has received limited academic attention. Practical implications: The findings guide MLEs and other listed firms in designing CFO involvement in board processes andbalancing effective financial oversight with good governance practices. Theoretical implications: This study contributes to corporate governance theory by illustrating how CFOs play a distinctive role in board structures, particularly in contexts where companies must balance financial expertise with administrative independence. It deepens understanding of how CFO involvement shapes decision-making dynamics,strategic oversight, and the evolution of governance models in smaller capital markets.

We study the effect of executives’ pledges of integrity on firms’ financial reporting outcomes by exploiting a 2016 regulation that requires holders of Dutch professional accounting degrees to pledge an integrity oath. We identify chief executive officers (CEOs) and chief financial officers (CFOs) required to take the integrity oath and find that firms reduce income-increasing discretionary accruals after executives took the oath. These firms also reduce discretionary expenditures, indicating that oath-taking executives reduce overall earnings management and do not merely substitute accruals-based with real-activities earnings management. These effects are concentrated in firms where the CFO took the oath. Overall, our results indicate that integrity oaths for executives improve firms’ financial reporting quality. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M40; M41.

PurposeThis study examines the relationship between chief financial officer (CFO) general ability and corporate debt financing, using all Chinese listed companies as the sample. It has significant implications for corporate shareholders and investors. Companies aiming to increase the proportion of external capital should prioritise the CFO's general ability. Similarly, investors can consider this a valuable sign before making investment decisions.Design/methodology/approachThis study follows Custódio et al.'s (2013) approach to measuring the CFO general ability index (GAI) in five dimensions, while the D/E ratio is treated as the primary proxy of corporate debt financing. This study investigates the linear relationship between CFO general ability and corporate debt financing by using the ordinary least squares (OLS) regression with controlling year and industry fixed effect simultaneously.FindingsBased on a sample dataset of all listed firms in China from 2008 to 2023, this paper identifies a significant positive correlation between CFOs' general management skills and corporate debt financing. This finding underscores that generalist CFOs prefer debt financing over equity financing. The paper also suggests that corporate innovation could be a potential mechanism through which CFOs' comprehensive management skills influence debt financing.Originality/valueThis study expands upon prior research by establishing a positive correlation between generalist CFOs and debt financing. Previous studies investigating the influence of CFO demographic characteristics have predominantly concentrated on singular dimensions, such as educational background, varied professional experiences and career trajectories, often overlooking the significance of past work experience. Secondly, this paper enriches the financial literature by introducing a novel determinant that substantially impacts debt financing.

The recent spate of fraudulent financial reporting in the U.S. has drawn attention to the fact that the Chief Financial Officer (CFO) has a substantial amount of control over a firm's reported financial results. This paper examines the changes in discretionary accruals surrounding the appointment of a new CFO. Using a sample of 712 companies that appointed a new CFO in the period 1994 to 2000, we find that discretionary accruals decreased significantly following the appointment of a new CFO. Our tests indicate that this reduction is significantly greater for our group of CFO-hiring firms than for a control group of non-hiring firms, and that the changes are not driven by a concurrent appointment of a new Chief Executive Officer (CEO). We also find that our results are largely driven by firms that hire a new CFO from outside the company. Our study extends earlier research by providing empirical evidence that individuals in CFO positions wield significant influence over the firm's reported financial results and that a firm's discretionary accruals are significantly reduced surrounding the appointment of a new CFO.