Internal Control Material Weaknesses and CFO Compensation

• 成果类型: Review
• 署名作者: Hoitash, Rani; Hoitash, Udi; Johnstone, Karla M.
• 署名单位: Bentley University; Northeastern University; University of Wisconsin System; University of Wisconsin Madison
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2011.01122.x
• 发表日期: 2012
• 页码: 768-+
• 关键词: sarbanes-oxley act; corporate governance; executive-compensation; control deficiencies; Accounting information; performance-measures; ceo compensation; Accruals quality; firm; BOARD

摘要

Boards of directors and compensation committees predominantly use financial measures reflecting executive managerial duties as inputs to executive compensation decisions. Yet, there is little research on the link between executive compensation and nonfinancial performance measures. We develop and test a model of chief financial officer (CFO) compensation with specific emphasis on the link between the disclosure of internal control material weaknesses (ICMW), a nonfinancial performance measure reflecting CFO fiduciary duties, and CFO compensation. Because internal controls are under the direct responsibility of the CFO, the disclosure of an ICMW reflects poorly on his/her performance. As a baseline, we find that ICMW disclosures lead to decreases in CFO compensation (bonus, equity, and total). Of greater interest, we find that CFOs at firms with stronger governance experience larger compensation decreases upon ICMW disclosures compared to CFOs at firms with weaker governance. In addition, CFOs at firms with greater costs of financial statement misreporting experience larger compensation decreases upon ICMW disclosures compared to CFOs at firms with lower costs of misreporting. Taken together, these results contribute to the relatively sparse literature on CFOs by illustrating the importance of CFO fiduciary duties and the interaction of those duties, in terms of firm governance and misreporting costs, with changes in CFO compensation.