| I formulate and analyze agency models that capture several features relevant in the CEO-CFO setting. The main feature is that the quality (i.e., precision and accuracy) of the contractible performance measure depends on the reporting system, which is controlled by the CFO. The CFO's main role is informational, in facilitating monitoring and incentive contracting that motivates productive effort from the CEO. After reviewing the related literature, I present and analyze several variations of the principal-CEO-CFO agency. In the first variation, I focus on the implications of the CEO having power that enables the CEO to pressure the CFO to manipulate the performance metric. In the second variation, the CEO and CFO may collude, and the CFO contributes directly to output. Also, there is an exogenous-quality performance metric available. In the third variation, the CEO's power is unknown to the CFO and principal ex-ante, and a revelation mechanism is employed to examine expected utilities and the CEO's informational rents. In general, I find that: incentive compensation can be positively or negatively associated with the variance of the performance metric; CEO power over the CFO affects incentive strength and reporting quality and changes the way that reporting costs affect these; CFO production makes collusion between the CEO and CFO more valuable; collusion between the CEO and CFO might be value-enhancing or value-destroying; and either powerful or non-powerful CEOs can earn rents when their power is unknown during contracting. |
