Ruonan Liu: 0000-0002-1197-1780
China Accounting and Finance Review
This study examines whether CFO promotion-based incentives induce opportunistic reporting activities. We find that CFO promotion-based incentives, measured by the pay gap between the CEO and the CFO, are positively associated with accruals management and accounting misconduct in the pre-SOX period and the probability of meeting or beating analysts’ forecasts in both the pre- and post-SOX periods. Further analysis shows that CFO promotion-based incentives are negatively associated with real earnings management in both the pre- and post-SOX periods. In addition, we find some evidence that the association between CFO promotion-based incentives and opportunistic reporting activities is stronger before CEO turnovers. We also document that CFOs engage in more opportunistic financial reporting when the pay gap between the CFO and other VPs is greater. Overall, our findings suggest that CFO promotion-based incentives may encourage CFOs to engage in opportunistic reporting activities but mitigate real earnings management.
CFO Promotion-based Incentives and Earnings Management.
China Accounting and Finance Review, 22, 1–31.