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CFO co-option and CEO compensation

Detail Summary
Datum 6 juni 2019
Tijd 11:00 - 12:30
Locatie Roeterseilandcampus - gebouw M
Ruimte Amsterdam Business School, REC M4.02

We study whether relative power in the CEO-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 newly co-opted CFO yields the achievement of earnings targets is through the use of earnings management to inflate earnings. We document that newly co-opted CFOs relied primarily on using discretionary accruals to manage earnings prior to the Sarbanes-Oxley regulatory intervention and switched to real activities manipulation afterwards. The evidence thus suggests that the form of earnings management depends on costs imposed on the CFO to inflate earnings

Roeterseilandcampus - gebouw M
Roeterseilandcampus - gebouw M

Ruimte Amsterdam Business School, REC M4.02

Plantage Muidergracht 12
1018 TV Amsterdam