Implications of power: When the CEO can pressure the CFO to bias reports

Henry L. Friedman

Journal of Accounting and Economics, 2014, vol. 58, issue 1, 117-141

Abstract: Building on archival, anecdotal, and survey evidence on managers׳ roles in accounting manipulations, I develop an agency model to examine the effects of a CEO׳s power to pressure a CFO to bias a performance measure, like earnings. This power has implications for incentive compensation, reporting quality, firm value, and information rents. Predictions from the model provide potential explanations for the differing results from recent empirical studies on the impact of regulatory interventions like SOX and the extent to which the CEO׳s or CFO׳s incentives significantly impact on earnings management. The model also identifies conditions under which either a powerful or a non-powerful CEO can extract rents, which can help explain mixed empirical results on the association between CEO power and “excessive” compensation.

Keywords: Reporting; Bias; Countervailing incentives; CEO power (search for similar items in EconPapers)
JEL-codes: D86 G34 J33 M12 M41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:58:y:2014:i:1:p:117-141

DOI: 10.1016/j.jacceco.2014.06.004

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