Supervision or collusion? CEO–CFO social ties and financial reporting quality
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 27 September 2022
Issue publication date: 20 October 2022
Abstract
Purpose
Social ties may either help chief executive officers (CEOs) supervise chief financial officers' (CFOs) behaviors effectively and improve financial reporting quality or lead to collusion and undermine financial reporting quality. Therefore, this paper examines the impact of social ties between CEOs and CFOs on financial reporting quality.
Design/methodology/approach
This paper constructs the CEO–CFO social ties through their mutual alma mater or birthplace. Based on 6,787 Chinese non-financial firm-year observations from 2003 to 2020, the paper conducts an empirical test using the multiple regression method.
Findings
The main finding is that firms with CEO–CFO social ties are more likely to exhibit higher financial reporting quality. CEOs with social ties to CFOs can obtain a high level of information and exert a better supervisory and monitoring role. Further, CEO–CFO social ties are more effective when the CEO does not have a financial background and when the institutional environment is weak.
Originality/value
This paper mainly contributes to the literature exploring the impact of executive characteristics on financial reporting quality and the literature examining the relation between social ties and corporate behaviors. Meanwhile, the paper emphasizes the important role of social ties as an informal monitoring mechanism in practice.
Keywords
Acknowledgements
The authors appreciate valuable questions and comments from Tom Smith (editor), the anonymous reviewer, Shijun Zhao and Libing Zhao. Kaigang He acknowledges financial support from the National Natural Science Foundation of China (No. 71802128; No. 71802178) and Shanghai Philosophy and Social Science Fund (No. 2018BGL088). Yijun Meng acknowledges funding from the National Social Science Fund of China (No. 21CGL035). Professor Ye acknowledges financial support from NSFC (No. 92146004; 91746117; 72172085), the MOE Project of Key Research Institute of Humanities and Social Science in University, and Program for Innovative Research Team of Shanghai University of Finance and Economics.
Citation
Fang, X., He, K., Meng, Y. and Ye, J. (2022), "Supervision or collusion? CEO–CFO social ties and financial reporting quality", Journal of Accounting Literature, Vol. 44 No. 2/3, pp. 133-153. https://doi.org/10.1108/JAL-03-2022-0031
Publisher
:Emerald Publishing Limited
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