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Under pressure: reporting costs and managerial power in the CEO-CFO setting (2011)
BibTeX
@MISC{Friedman11underpressure:,
author = {Henry Friedman and Paul Fischer and Nick Gonedes and Mirko Heinle and Wayne Guay and Chris Armstrong and Gavin Cassar and Cathy Schr},
title = {Under pressure: reporting costs and managerial power in the CEO-CFO setting},
year = {2011}
}
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Abstract
I analyze an agency model in which the CFO oversees a reporting system that provides information useful for monitoring, decision-making, and contracting. The CFO can bias the performance metric, but this biasing choice is subject to pressure from the potentially powerful CEO. In this setting, I …nd that CEO power over the CFO leads to lower-quality reporting, lower …rm value, stronger incentive compensation for the CEO, and alters the way that the CFO reacts to changes in the reporting environment. Additionally, I …nd that the CEO’s compensation incentives and the quality of the reporting system are primarily substitutes, leading to a positive association between risk and incentive strength. This occurs even though the reporting system complements the CEO’s incentives by making them less risky.
