CFO Career Prospects and Earnings Quality

• In Event: Financial Accounting and Reporting: Earnings

Abstract

In this study, we find strong evidence that newly public firms led by Chief Financial Officers (CFOs)
with greater career prospects are less likely to engage in accrual-based and real earnings management
and have a lower likelihood of misstatement in the offering year. Results from instrumental variables
regression and entropy balancing approach further alleviate endogeneity concerns. We also document
that the negative effect of CFOs career prospects on abnormal accruals is stronger among VC-backed
firms and those firms with greater monitoring. Finally, we find that CFOs with high career prospects use Initial Public Offerings events to accelerate their career and be promoted in higher positions in either the same firm or in other public firms in the years following the IPO

Authors

• Dimitrios Gounopoulos, University of Bath

• Giorgos Loukopoulos, Open University

• Panagiotis Loukopoulos, Strathclyde University

• Yu Zhang, University of Bath