CFO Compensation Gap And Financial Irregularity

In recent years,the pay of corporate executives has received more and more attention from all sectors of society.At the same time,more and more companies are receiving attention from regulators because of their high salary.In order to curb the trend of widening the gap between executives and employees in state-owned enterprises since 2003,relevant departments have adopted more explicit measures to limit wages.The pay gap of enterprises has also been concerned by the academic community.At present,the research on the pay gap of listed companies mostly considers executives as a whole,and studies the economic consequences of the pay gap between top management groups and employees or senior management groups and industry pay levels.Few scholars pay attention to the compensation of CFOs.Secondly,the existing research on the pay gap mainly focus on examining the relationship between pay gaps and company performance,earnings management,and company value.Most of them support the tournament theory and pay less attention to the impact of pay gaps on corporate irregularities.Finally,the existing research on non-compliance and financial irregularity focus on whether violations occur and the frequency of non-compliance.Little attention is paid to how high-level managers will be penalized when violations are punished.Based on the background of this study,after summarizing the existing literature on pay gap,corporate financial irregularity and financial irregularity penalties,this paper analyzes the relationship between CFO's pay gaps and corporate financial irregularities from the perspectives of capability recognition and senior management collusion.This paper proposes two assumptions.This paper uses the 2008-2016 data of A-share listed companies as a sample,and selects samples of financial violations from the listed company's irregularity data as proxy variables of the company's financial irregularities.With whether the CFO is punished or not,the absolute degree of punishment and relative degree of punishment to measure the degree of penalties imposed by CFOs,we analyze the sample data using STATA and examine the relationship between CFOs'pay gaps,corporate financial irregularity,and CFO penalties.The study finds that:(1)The greater the pay gap between CFOs have,the lower the probability of a company's financial irregularities is and the stronger the ability of the CFOs is;at the same time,the relatively higher the pay is,the more satisfied the CFO is with his own salary;(2)The greater the CFO's pay gap is,the more severe the CFO's punishment is after the company's financial violations are discovered.Under the ambiguous definition of responsibility for financial irregularities and the light degree of securities regulatory penalties,the CFO is highly likely to be willing to assume the responsibility for financial irregularities because of higher pay and become a scapegoat for other senior executives;(3)CFOs' pay gap has no significant influence on company's financial irregularities;the company's historical financial irregularities cannot prevent the occurrence of subsequent financial irregularities;(4)The CFOs' salary gap of concurrent subsample and non-concurrent subsample is significantly negatively correlated with the company's financial irregularities.For non-concurrent subsample,salary gap has a greater impact on the company's financial irregularity;internal promoted CFO's pay gap does not have a significant impact on corporate financial irregularities,while external hired CFO's pay gap has a significant negative impact on corporate financial violations;Compared with state-owned enterprises,the non-state-owned company CFO's pay gap has a more significant and greater impact on the company's financial irregularity probability;(5)Finally,this paper adopts different measurement method of CFO's pay gap?and the CFO's stocks as a kind of compensation?PSM?partially observable bivariate-probit model for robustness test for robustness test,CFO's compensation gap between the company and financial irregularities is still significantly negative,and CFO punished extent is still significantly positive.Finally,according to the research design of this paper,several innovations and deficiencies are proposed to provide reference for later research.