Chief Financial Officer Co-option and Chief Executive Officer Compensation

• 成果类型: Article
• 署名作者: Dikolli, Shane S.; Heater, John C.; Mayew, William J.; Sethuraman, Mani
• 署名单位: University of Virginia; Duke University; Cornell University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3519
• 发表日期: 2021
• 关键词: CFO; ceo; Executive compensation; monitoring; Financial reporting; managerial power; earnings management; discretionary accruals; real earnings management

摘要

We study whether relative power in the chief executive officer (CEO)-chief financial officer (CFO) relationship influences CEO compensation. To operationalize relative power of a CEO over a CFO, we define CFO co-option as the appointment of a CFO after a CEO assumes office. We find that CFO co-option is associated with a CEO pay premium of about 10%, which is concentrated more in the early years of the co-opted CFO's tenure and in components of compensation that vary with the achievement of analyst based earnings targets. Our evidence also indicates that a primary channel through which CEO power over a co-opted CFO yields the achievement of earnings targets is the use of earnings management to inflate earnings. Co-opted CFOs rely primarily on using discretionary accruals to manage earnings prior to the Sarbanes-Oxley regulatory intervention and switch to real-activities manipulation afterward. The evidence thus suggests that the form of earnings management depends on costs imposed on the CFO to inflate earnings.