The role of CFO power: Monitor or collusion——Evidence from China

2021 ◽  
pp. 002072092098370
Author(s):  
Yubin Gao ◽  
Ju Mao ◽  
Lingge Zhao
Keyword(s):  
Earnings Management ◽  
Private Enterprises ◽  
Earnings Manipulation ◽  
Compensation Contracts ◽  
Sample Group ◽  
Chinese Context ◽  
Inhibition Effect ◽  
Empirical Results ◽  
Agency Conflict

In combination with the unique cultural and institutional background of China, this paper puts forward the measurement of CFO power in the Chinese context, and systematically analyzes and tests the role of CFO power. The empirical results show that the greater the power of CFO, the lower the degree of earnings management of the company, indicating that the power of CFO is more of a supervisory role, rather than collusion with the CEO due to interests binding. And the inhibition effect only exists in the sample group of private enterprises. Moreover, the supervision role of CFO power only exists in companies with high robustness and severe agency conflict, which shows that CFO reduces their company's earnings manipulation based on their own conservation and by suppressing opportunism. In addition, CFO power helps improve the effectiveness of their own compensation contracts.

scholarly journals Does the Monitoring Mechanisms Considered as Dilemma against the Practices of Earnings Management

2017 ◽  
Vol 10 (10) ◽  
pp. 39
Author(s):  
Dea'a Al-Deen Omar Alsraheen ◽  
Isam Hamad Saleh
Keyword(s):  
Earnings Management ◽  
Audit Committee ◽  
Management Practices ◽  
Annual Reports ◽  
Service Firms ◽  
Financial Reports ◽  
Agency Conflict ◽  
Regulatory Bodies

This paper mainly aims to explore the role of monitoring mechanisms in limiting the earnings management practices among service firms in Jordan. The data used in this study were from the financial annual reports of 59 ASE listed service firms in 2015. The results of multiple regression analysis demonstrate the fairly varied influence of board of directors’ variables. This paper presented three hypotheses covering board independency, CEO duality and audit committee. According to the results, internal monitoring mechanisms significantly impact the level of the practices of earnings management and the reduction of the agency conflict. Additionally, the regulatory bodies in Jordan should focus more on the role of internal monitoring mechanisms in Jordanian companies in terms of effectiveness in order to improve the quality of financial reports can be improved via the assurance of high quality of earnings. Finally, this study becomes a catalyst for more research on quality of financial reports and earnings quality in Jordan and other countries where there is still lack of studies in this domain.

scholarly journals Pay performance sensitivity and earnings restatements

2014 ◽  
Vol 11 (3) ◽  
pp. 273-293
Author(s):  
Surjit Tinaikar ◽  
Kun Yu
Keyword(s):  
Earnings Management ◽  
Institutional Ownership ◽  
Public Confidence ◽  
Accounting Earnings ◽  
Compensation Contracts ◽  
Earnings Restatements ◽  
Cash Compensation ◽  
The Board Of Directors ◽  
Earnings Restatement

We examine whether the board of directors adjusts the sensitivity of CEO compensation to earnings following an earnings restatement. Using a sample of 598 restating firms and 2,065 non-restating firms during the period of 1995-2011, we find that firms decrease the sensitivity of cash compensation to accounting earnings after restatements and that this decrease is more pronounced for firms that appoint new CEOs after restatements than those whose CEOs continue to remain in office after restatements. Furthermore, the results suggest that the decrease in the sensitivity of cash compensation to earnings for restating firms with new CEOs is more pronounced for firms with a higher level of institutional ownership. This highlights the monitoring role of institutional investors in the redesign of compensation contracts following restatements. Overall, our results are consistent with the argument that the board adjusts the sensitivity of cash compensation to earnings downwards following restatements to constrain earnings management and recover public confidence in the firm.

scholarly journals Real Earnings Management and Audit Committee Characteristics

2019 ◽  
Vol 2 (1) ◽  
pp. 8
Author(s):  
Kamarul Abdul Manaf
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Policy Implication ◽  
Audit Committee ◽  
Real Earnings Management ◽  
Earnings Manipulation ◽  
Public Firms ◽  
Reporting Process

Whether audit committee (AC) could discharge its responsibility effectively in monitoring financial reporting process has been an important issue in accounting literature. This paper examines whether AC characteristics are important factors in constraining earnings manipulation. In particular, we examine the effect of AC competence, independence, meeting and size on real earnings management. The sample is public firms listed on Bursa Malaysia over the period 2014-2017. Our results show that AC competence is important characteristic that could curb real earnings management. As the level of competence increases, the level of real earnings management decreases. We also find that AC meeting is positively associated with real earnings management. The result suggest that AC meets more often when there are issues in financial reporting. However, AC independence and size have no relationship with real earnings management. This study provides insights on the role of AC with policy implication on regulator.

scholarly journals Career concerns and earnings management

2020 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Elizabeth Demers ◽  
Chong Wang
Keyword(s):  
Labor Market ◽  
Earnings Management ◽  
Early Years ◽  
Career Concerns ◽  
Management Model ◽  
Earnings Manipulation ◽  
Management Decisions

Motivated by the disconnect between survey evidence documenting that executives prioritize implicit contracting (i.e., labor market-based career concerns) when making earnings management decisions (Graham et al., 2005) and the extant literature’s focus on explicit contracting to explain earnings manipulation, we analytically examine the role of managerial career concerns in earnings management. Building on Holmstrom (1982, 1999), we present a career concerns-based earnings management model that incorporates the unique reversing nature of earnings management. A key insight derived from the model is that whether the predictions of a traditional career concerns model prevail, which is to say that managers engage in more income-increasing behavior in their early years, critically depends upon the reversal characteristics of the earnings management vehicle chosen.

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