Chief Financial Officer Power, Pay Duration, and Earnings Quality

February 9, 2014 Leave a comment

Chief Financial Officer Power, Pay Duration, and Earnings Quality

Stacey Kaden 

University of Arkansas

Juan Manuel Sanchez 

Texas Tech University
August 16, 2013
AAA 2014 Management Accounting Section (MAS) Meeting Paper

Abstract: 
While numerous studies have examined the impact that powerful CEOs have on their compensation and overall firm decisions, relatively little is known about how powerful CFOs influence their compensation and important firm outcomes, such as earnings quality. This is somewhat surprising given the critical role CFOs play in the financial reporting process of a firm. We examine whether relatively more powerful CFOs influence the “duration” of their compensation. Our results suggest that powerful CFOs have shorter pay durations than less powerful CFOs, giving powerful CFOs faster unrestricted access to their compensation. Additionally, we examine whether powerful CFOs affect the earnings quality of the firms they manage, particularly when the incentives arising from “pay duration” are strong. We find higher levels of income-increasing accrual-based earnings management in firms with powerful CFOs who have short pay durations.

 

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Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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