John (Xuefeng) Jiang, Kathy Petroni, and Isabel Wang of the Eli Broad College of Business, Michigan State University investigated whether CFO equity incentives are associated with earnings management in The Harvard Law School Forum on Corporate Governance and Financial Regulation blog. Research usually focuses on CEO equity incentives and how they affect earnings management, however, both commentators and policymakers have expressed a concern that CFO equity-based compensation might also contribute to earnings management. The results suggest that future research should consider compensation of CFOs when investigating incentives for earnings management. Most notably, the results confirm policymakers’ concerns over CFO compensation and provide indirect support for the SEC’s new requirement for disclosures of CFO compensation–which could be useful for investors and analysts to assess the quality of firms’ financial reporting.
CFOs, CEOs and Earnings Management
New research delves into whether CFO compensation directly influences incentives for earnings management.
September 2, 2009