The Effect Of Cfo Characteristics On Accrual Quality And Its Action Mechanism

Earnings quality plays an important role both in the operation and management of listed companies and in the healthy development of capital market. What factors affect listed companies’ earnings quality and how to improve listed companies’ earnings quality are important issues which are always concerned by investors and regulators. Previous studies mainly investigate the determinants of earnings quality from firm-level and find that earnings quality is mainly affected by firm characteristic variables and corporate governance variables. However, the upper echelons theory contends that organizational outcomes(strategic choices and performance level) are partially predicted by managerial background characteristics. Recently, acccounting scholars try to explain firm’s financial reporting practices from manager-level and find that managrial characteristics significantly impact firm’s earnings quality. However, most of them explore the effect of top management team characteristics or CEO characteristics on firm’s earnings quality, whereas few of them explore the effect of CFO characteristics on firm’s earnings quality. However, Hambrick proposes that different types of executives have different level of engagement in certain types of decisions, focousing on those executives who has high level of engagement in specific domains of actions can improve the predicting ability of the upper echelons theory.As a primary decision-maker for firm’s accounting policy and a supervisor for firm’s financial reporting process, the CFO has a subtantial amount of controls over a firm’s reported financial results and he/she likely have the most direct impact of all the senior managers on the earnings information quality of the firm. Accrual quality is the key elements of earnings information quality and is usually defined as the exent to which accruals map into cash flow realizations. Accrual quality is a resonable measurement of earnings information reliability and can accurately measure earnings information quality. Moreover, CFO has subtantial amount of discretion on the recognition and estimate of firm’s accruals. Therefore, it is more theorically and practically significant to investigate the effect of CFO characteristics on firm’s accrual quality. Most of important, existing literature mainly focus on wheter managerial characteristics affect firm’s earnings quality and pay little attention to when and how managerial characteristics affect firm’s earnings quality. This dissertation firstly examines whether CFO characteristics affect firm’s accrual quality, then explores the conditions under which CFO characteristics affect firm’s accrual quality from the aspects of CFO power and ownership nature, and finally investigates the channels through which CFO characteristics affect firm’s accrual quality from the perspectives of accounting policy choice, financial policy choice and internal control establishment. This dissertation try to open the “blackbox” between CFO characteristics and accrual quality.In oder to answer whether CFO characteristics affect firm’s accrual quality, this dissertation deeply analyzes the effect of CFO characteristics on firm’s accrual quality based on the upper echelons theory, the principal-agent theory, the management entrechment theory and the social capital theory, and then use the multipe regression analysis to empirically examine the relationship between CFO characteristics and accrual quality. This research find that CFO characteristics significantly impact firm’s accrual quality after controling for firm characteristic variables and corporate governance variables. Specifically, accrual quality increases in CFO age, CFO tenuer and decreases in CFO education level and CFO shareholding. Additionally, the results of robustness tests show that the percentage of CFO shareholdings and the difference of CFO part-time jops both do not affect firm’s accrual quality; after controlling CEO characteristics, CFO characteristics still affect firm’s accrual quality. The results not only establish the import role of the CFO in esuring firm’s financial reporting quality, but also provide new references to investors and regulators for evaluating firm’s earnings quality.In order to answer when CFO characteristics affect firm’s accrual quality, this dissertation divides full sample into high CFO power group and low CFO power group based on CFO power and into state-owned-enterprise group and non-state-owned-enterprise group based on owership nature, and then uses grouping regression technic to empirically examine the moderating effects of CFO power and owership nature on the relationship between CFO characteristics and accrual quality. This research find that CFO power and ownership nature both significantly moderate the effect of CFO characteristics on accrual quality. Specifically, the effects of CFO education level, CFO tenure, CFO shareholding and CFO part time on accrual quality all increase in CFO power, whereas the effect of CFO age on accrual quality decreases in CFO power; CFO age, CFO tenure, and CFO part time sigificantly affect accrual quality only in non-state-owned-enterprises, whereas CFO education level significantly affects accrual quality only in state-owned-enterprises; the effect of CFO shareholding on accrual quality is more significant in non-state-owned-enterprises than in state-owned-enterprises. The results not only reveal the conditions under which CFO characteristics affect firm’s accrual quality and deep our understanding of when CFO characteristics affect firm’s accrual quality, but also provide new empirical evidences to support the predictions of upper echelons theory and enrich and develop the upper echelons theory.In order to answer how CFO characteristics affect firm’s accrual quality, this dissertation analyzes CFOs’ responsibilities and authorities and identify accounting polity choice, financial policy choice and internal control establishment as the three paths through which CFO characteristics affect firm’s accrual quality, and then use Mplus path analysis to emprically examine the simple and multiple mediating effects of CFO characteristics affecting accrual quality. The results of simple mediating effect analysis show that accounting policy, financial policy and internal control all play a mediating or supressing role in the relationship between CFO characteristics and accrual quality. Specifically, accounting policy promotes the positive effects of CFO age and CFO part time on accrual quality and the negative effects of CFO gender and CFO shareholding on accrual quality, but surpresses the positive effect of CFO tenuer on accrual quality; financial policy promotes the positive effect of CFO tenure on accrual quality and surpresses the negative effects of CFO gender and CFO shareholding on accrual quality; internal control promotes the positive effect of CFO part time on accrual quality, but surpresses the negative effects of CFO education and CFO shareholding on accrual quality and the positive effect of CFO age on accrual quality. The results of multiple mediating effect analysis indicate that CFO characteristics indirectly impact accrual quality through accounting policy, financial policy and internal control simultaneously, and there are some differences in the action mechanisms of different CFO characteristics on accrual quality. This research not only reveals the mechnisms through which CFO characteristics affect accrual quality, but also provides concrete ways to improve the quality of accounting information.In oder to further answer when the mediating or surpress effects is stronger, this dissertation reestimates the indirect effects of accounting policy, financial policy and internal control using high CFO power subsample and low CFO power subsample, state-owned-enterprise subsample and non-owned-enterprise subsample respectively. The results show that CFO power and ownership nature both moderate the mediating or surpressing effects of acconting policy, fiancial policy and internal control in different magnitude. This research not only reveals the moderating mechanisms of CFO characteristics affecting accrual quality indirectly, but also contributes to the literature on the relationship between managerial characteristics and earnings quality.