Are CFOs Effective Operators? An Empirical Analysis of CFO/COO Duality

2018 ◽  
Vol 31 (2) ◽  
pp. 37-58 ◽  
Author(s):  
Steve Buchheit ◽  
Austin L. Reitenga ◽  
George Ruch ◽  
Daniel A. Street
Keyword(s):  
Empirical Analysis ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Financial Reporting Quality ◽  
Chief Financial Officer ◽  
Sample Period ◽  
Future Cash Flows

ABSTRACT While the popular press has documented Chief Financial Officer (CFO) role expansion into traditional operations functions, recent research suggests that time spent on non-core CFO activities harms financial reporting quality. We examine the operational acumen of CFOs and potential negative reporting consequences stemming from one person simultaneously holding the role of CFO and Chief Operations Officer (COO) (CFO/COO duality). Empirically, CFO/COO duality occurs with increasing frequency during our sample period (2000–2016); duality is not uncommon (among firms with a COO, over 10 percent have a unified CFO/COO executive). We find no evidence that combining the CFO and COO positions adversely affects operations. Regarding financial reporting quality, we find some evidence that CFO/COO duality firms have relatively more volatile discretionary accruals; however, these accruals are also relatively more predictive of future cash flows. Collectively, our results suggest that unifying control of operations and reporting can be an effective corporate reconfiguration.

scholarly journals Earnings Management Behavior in Malaysia: The Role of Ownership Structure and External Auditing

2020 ◽  
Vol 19 (3) ◽  
pp. 185-221
Author(s):  
Nor Irdawati Mahyuddin ◽  
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Quality ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Real Earnings Management ◽  
Financial Reporting Quality ◽  
External Control ◽  
Listed Firms

"This paper aims to empirically investigate firms’ earnings management (EM) behaviour, representing an issue in the realm of corporate financial reporting. Specifically, it explores the strategic roles of two common governance elements of ownership (managerial, institutional and family) and external audit in shaping the firms’ EM behaviour based on the two common EM attributes of Discretionary Accruals (DA) and Real Activities EM (REM). The analyses based on 227 survived Malaysian listed firms throughout the sixteen-year period from 2001 to 2016 (3,632 firm-year observations) indicate a dynamic EM behaviour depending on the presence of different ownership structures. Whilst a high percentage of family and institutional ownership mitigates DA, it however does not hold true for REM. Further, this paper also shows that the external control mechanism of audit quality is not significant in mitigating both EM attributes. The empirical results suggest that firms facing different challenges would affect the firms’ financial reporting behaviours in their choice of EM. The paper adds to the growing body of empirical knowledge dealing with the determinants of DA and REM from the lens of an emerging economy like Malaysia. KEYWORDS: Earnings management, discretionary accruals, real earnings management, accrual earnings management, financial reporting quality."

Labor and Finance: The Role of Financial Reporting Quality

2019 ◽  
Author(s):  
Boochun Jung ◽  
Woo-Jong Lee ◽  
David P. Weber ◽  
Daniel Yang
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality

Regulation of capital flows: Effects on liquidity and the role of financial reporting quality

2020 ◽  
Vol 175 ◽  
pp. 86-97
Author(s):  
Kyriaki Kosmidou ◽  
Dimitrios Kousenidis ◽  
Anestis Ladas ◽  
Christos Negkakis
Keyword(s):  
Financial Reporting ◽  
Capital Flows ◽  
Reporting Quality ◽  
Financial Reporting Quality

Does Sharia compliance affect the financial reporting quality? An evidence from Muslim majority countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gökberk Can
Keyword(s):  
Financial Reporting ◽  
Robustness Analysis ◽  
Supervisory Board ◽  
Reporting Quality ◽  
Discretionary Accruals ◽  
Financial Reporting Quality ◽  
Financial Instruments ◽  
Content Type ◽  
Financial Reporting Standards ◽  
Muslim Majority

Purpose Sharia compliance states that the compliant company operates not only under regulations but also to the restrictions and permission of Islam. This study aims to reveal whether Sharia compliance enhances the financial reporting quality. Design/methodology/approach The sample is constructed from 15 Muslim majority countries, 2,300 companies for the periods between 2005 and 2017 with 23,810 firm*year observations. Financial reporting quality is measured with discretionary accruals and audit aggressiveness. Discretionary accruals is the absolute of Kothari, Leone and Wasley’s (2005) “performance matched discretionary accruals model.” Audit aggressiveness is calculated with Gul, Wu and Yang’s (2013) model. Findings This study reveals the behavioral differences in financial reporting quality between Sharia-compliant and non-compliant companies. According to the analyzes, Sharia compliance increases the financial reporting quality by decreasing the discretionary accruals and audit aggressiveness. This result is supported by the robustness tests. Practical implications Sharia compliance is not limited to business activity, financial restrictions and supervisory board for Sharia-compliant companies. It also enhances the companies’ financial reporting quality. Robustness analysis also showed that the International Financial Reporting Standards (IFRS) increases the financial reporting quality by reducing discretionary accruals and audit aggressiveness. Originality/value This study contributes to the accounting literature by providing an insight on the use of Islamic financial instruments. The empirical results also show that the use of IFRS and Islamic financial instruments decreases the discretionary accruals and audit aggressiveness.

AUDIT COMMITTEE AND AUDIT CHANGE: EMPIRICAL EVIDENCE FROM THE EMERGING MARKET

2012 ◽  
Author(s):  
Zaitul Zaitul
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Practical Implication ◽  
Emerging Market ◽  
Reporting Quality ◽  
Theoretical Implication ◽  
Financial Reporting Quality ◽  
Financial Expertise ◽  
The Relationship

This study aims to investigate the relationship between audit committee and audit change in listed Indonesia Company. We use four variables for audit committee that is independence, size, financial expertise and activity. Besides, this study also uses three control variables (ROA, LEV, and SIZE). By using the Binary Logic Model (BLM) with panel data for 654 observation, we find that all hypotheses are rejected which means that there is no role of audit committee in determining the audit change. However, big and company with the higher leverage is less likely to change audit, firm. This finding has a practical and theoretical implication. For practical implication, regulator or government agent can increase the financial reporting quality by improving the role of audit committee by changing related mechanism.

The Role of Financial Reporting Quality in Mitigating the Constraining Effect of Dividend Policy on Investment Decisions

2013 ◽  
Vol 88 (3) ◽  
pp. 1007-1039 ◽  
Author(s):  
Santhosh Ramalingegowda ◽  
Chuan-San Wang ◽  
Yong Yu
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Dividend Policy ◽  
Investment Decisions ◽  
Reporting Quality ◽  
Data Availability ◽  
Financial Reporting Quality ◽  
High Quality ◽  
Investment Projects

ABSTRACT Miller and Modigliani's (1961) dividend irrelevance theorem predicts that in perfect capital markets dividend policy should not affect investment decisions. Yet in imperfect markets, external funding constraints that stem from information asymmetry can force firms to forgo valuable investment projects in order to pay dividends. We find that high-quality financial reporting significantly mitigates the negative effect of dividends on investments, especially on R&D investments. Further, this mitigating role of financial reporting quality is particularly important among firms with a larger portion of firm value attributable to growth options. In addition, we show that the mitigating role of high-quality financial reporting is more pronounced among firms that have decreased dividends than among firms that have increased dividends. These results highlight the important role of financial reporting quality in mitigating the conflict between firms' investment and dividend decisions and thereby reducing the likelihood that firms forgo valuable investment projects in order to pay dividends. Data Availability: Data are available from public sources identified in the paper.

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