CEO/CFO Connectedness And Corporate Surplus Management

It's a fact that the CEO-CFO connection will be tight if they are related based on appointment,which may lead to the dis-function in regulating and supervising corporate financial activities of CFOs.In order to explore the actual influence of CEO-CFO connections on the corporate earnings management,we use the China listed companies' data from year 2005 to 2014.It shows that the closer CEO-CFO connections will pronouncedly increase corporate surplus administration degree and the more regulated companies tend to be less affected.After we control both the CEO background factors and corporate governance factors,the result still reminds notable.Further regressions are done in using grouped samples divided by company size or ownership structure.The findings remain solid even after considering of endogenous problem and undertaking numbers of robust tests.There is no significant correlation between the corporate surplus management and the CEO/CFO connectedness when the CEO is also the chairman of the board.But the two will be significantly related if CEO is not the chairman.In addition,it was found that CEO/CFO connectedness had significant positive effect on the earnings management level in the listed companies with large asset size,while there is no significant correlation between them while the listed companies is small-size.There is no significant relationship between CEO/CFO connectedness and the level of earnings management of listed companies no matter the difference of the state-owned shareholding ratio or the financial leverage of the company.Among these enterprises with high shareholding ratio of the largest shareholder,the CEO/CFO connectedness would have a significant correlation with the earnings management level.There are many literatures try to study on earnings management.At present,most of them focus on the characteristics of board members,executive and equity.In-depth discussion of the professional relationship between CEO and CFO is still in the initial stage.The results of this study let us realize that the CEO/CFO's excessive intimacy can damage the quality of accounting information.Therefore,it is necessary for policymakers to reduce the possibility of "cronyism".On the CFO's selection,the company should ask the CEO to evade himself or restrict his power of appointment.