Supervision or collusion? CEO–CFO social ties and financial reporting quality

Xingtong Fang, Kaigang He, Yijun Meng and Jianfang Ye

Journal of Accounting Literature, 2022, vol. 44, issue 2/3, 133-153

Abstract: Purpose - Social ties may either help chief executive officers (CEOs) supervise chief financial officers' (CFOs) behaviors effectively and improve financial reporting quality or lead to collusion and undermine financial reporting quality. Therefore, this paper examines the impact of social ties between CEOs and CFOs on financial reporting quality. Design/methodology/approach - This paper constructs the CEO–CFO social ties through their mutual alma mater or birthplace. Based on 6,787 Chinese non-financial firm-year observations from 2003 to 2020, the paper conducts an empirical test using the multiple regression method. Findings - The main finding is that firms with CEO–CFO social ties are more likely to exhibit higher financial reporting quality. CEOs with social ties to CFOs can obtain a high level of information and exert a better supervisory and monitoring role. Further, CEO–CFO social ties are more effective when the CEO does not have a financial background and when the institutional environment is weak. Originality/value - This paper mainly contributes to the literature exploring the impact of executive characteristics on financial reporting quality and the literature examining the relation between social ties and corporate behaviors. Meanwhile, the paper emphasizes the important role of social ties as an informal monitoring mechanism in practice.

Keywords: Financial reporting quality; Social ties; CEO; CFO; Information advantage (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jalpps:jal-03-2022-0031

DOI: 10.1108/JAL-03-2022-0031

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