Author: Ning, Ping
Title: CFO power and accounting conservatism
Degree: M.Sc.
Year: 2018
Subject: Hong Kong Polytechnic University -- Dissertations
Chief financial officers
Corporations -- Finance
Corporations -- Accounting
Department: School of Accounting and Finance
Pages: v, 48 pages
Language: English
Abstract: The first aim of this paper is to examine the association between CFO power and accounting conservatism. It is known that the CFO's compensation is one of the critical indicators for CFO power, and the disclosure of other relevant information on CFO is always accompanied with the compensation. Given this, the author further investigates the effect of the new mandated disclosure rule of CFO's compensation, enacted from 2006, on the association of CFO power on accounting conservatism. To estimate the impact of CFO power on accounting conservatism, the author employs the Basu (1997) measurement of asymmetric timeliness, selects the parsimonious set of firm characteristics, i.e., the market to book ratio, size and leverage (Khan and Watts, 2009), as the controlling variables, and then integrates the CFO power variables. Four models characterized by four different measurements of CFO power are built to perform the test. In the first analysis on whether CFO power significantly affects accounting conservatism, the author finds the positive and significant association between CFO power and accounting conservatism, with CFO power measured by the rank of CFO's compensation and whether CFO serves as a director based on samples from the recent 11 years after the mandated disclosure of CFO's compensation. By controlling the percentage of CFO's equity-based compensation in total compensation, the results with CFO power measured by the rank of CFO's compensation are valuable for the further tests. In the second analysis on how the new mandated disclosure rule of CFO's compensation from 2006 affects the association between CFO power and accounting conservatism, the author finds that before disclosure mandate, CFO power and accounting conservatism have negative and significant association, and such association turns out to be positive and significant after disclosure mandate, with the same two measurements of CFO power as in the first analysis. The tests with the two measurements are on a basis of different sample sizes before disclosure mandate, yet their results are consistent. As the results suggest, in the last decade, the more powerful the CFO of a company, the more conservative the company will be in accounting. Furthermore, the positive association between CFO power and accounting conservatism is one of the outcomes after mandated disclosure of CFO's compensation was enacted, which improved the monitoring of CFOs. That is, under the greater monitoring, CFOs turn to devote more power into the reduction of information asymmetry by using conservative accounting, rather than draw upon their power as aggressively as they used to.
Access: restricted access

Files in This Item:
File Description SizeFormat 
991022144624103411.pdfFor All Users (off-campus access for PolyU Staff & Students only)926.5 kBAdobe PDFView/Open

Copyright Undertaking

As a bona fide Library user, I declare that:

  1. I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
  2. I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
  3. I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.

By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.

Show full item record

Please use this identifier to cite or link to this item: