The Impact of Social Ties Between CEOs and CFOs on Financial Reporting Quality
A burgeoning area of research in the field of accounting concerns the impact of social ties on the quality of financial reporting. No research, however, has studied the impact of the link between the quality of financial reporting and social ties involving a Chief Executive Officer (CEO) and a Chief Financial Officer (CFO). Executives--e.g., the CEO and the CFO--members of the board of directors, the audit committee, and external auditors often share many social ties. These social ties include common educational background, shared previous or current employment experiences, and memberships in religious, charitable, professional, and social organizations. Social ties can improve communications, but at the same time they can reduce the effectiveness of monitoring processes and consequently decrease the quality of financial reporting. This study investigates the impact of CEO-CFO social ties on financial reporting quality as revealed by accruals-based earnings management and financial restatements. This study also examines whether a CFO who has obtained a CPA license is more likely to resist the influence of CEO-CFO social ties on financial reporting quality. Analyzing publicly traded companies in the United States for a period starting in 2001 and ending in 2016, this study finds evidence that CEO-CFO social ties are positively associated with accruals-based earnings management and with the likelihood of financial restatements. This study also finds that holding a CPA license by a CFO moderates the association between CEO-CFO social ties and the likelihood of financial restatements.
A burgeoning area of research in the field of accounting concerns the impact of social ties on the quality of financial reporting. No research, however, has studied the impact of the link between…
Globalization of the world economies is increasing continuously. As a result, the International Financial Reporting Standards (IFRS) is gaining importance day after day.