CEO/CFO Relevance and Corporate Earnings Management

Abstract

It’s a fact that the CEO-CFO connection will be tighter if they have appointment relationships, which may lead to the disfunction of CFOs in regulating and supervising corporate financial activities. In order to explore the actual influence of CEO-CFO connections, we studied the correlation between CEO-CFO connectedness and the degree of corporate earnings management using the China listed company data from year 2005 to 2014. Results showed that CEO-CFO connections will increase corporate earnings management after considering the year fixed effect and the industry fixed effect. We control for corporate operation, CEO background and corporate governance factors. Further regressions are done using grouped samples divided by company size and ownership structure. The findings remain solid even after considering of numbers of robustness tests. Besides, we find that CEO duality and equity incentive will enhance the positive relationship.