A Study On Relationship Among CFO Turnover,the Characteristics Of The Successor And Earnings Management

As a hot topic in the field of corporate governance issues, especially with the widespread concern on executives resign phenomenon in recent years, the relationship between executives’turnover and earning management become a hot research for academia discussion. For this issue, most of the existing literatures are focused much on the study of the relationship between the general manager and chairman change and earnings management than on CFO Change and Earnings Management. However, from a professional point of view, as a direct person in charge of accounting information generated, CFO are entitled to choose accounting policy of enterprises, so they have significant impact on the quality of accounting information. Therefore, research on the relationship between earnings management and CFO change is necessary. This paper selects China Shanghai A shares of manufacturing listed companies which occur CFO turnover between2009and2012sample data to research the relationship between CFO change and earnings management. Besides, this paper focuses on the relationship between the different background characteristics of the successor executives including the successor succession timing, successor source, age and gender and earnings management.The empirical results show that CFO changes and discretionary accruals have a significant negative correlation in the event of CFO turnover. The successor would usually take earning management to downward profits in the succession year. This part of profit will be deferred to the successor own tenure to demonstrate his own ability and the improvement of financial situation. The decrease of the discretionary accruals of the study samples may be led by they own financial situation instead of the CFO turnover. To avoid this endogenous situation, this paper adopts Difference-in-Difference method to validate the relation between CFO turnover and earning management in order to enhance the explanatory power. Due to the special nature of the property rights of China’s enterprises, we have the samples divided into state-owned enterprises and non-state-owned enterprises samples according to the nature of property rights. The empirical results show that compared with the state-owned enterprises, there is a significant negative correlation between CFO turnover and earning management in.non-state-owned enterprises Meanwhile, the empirical results show that the source of the successor has a significant negative correlation with earnings management. That is the external successor will take a smaller earnings management. In addition, we did not find that there was a significant correlation between the characteristics of the successor including the succession timing, age and gender and earnings management.There are two innovations in this paper. First, unlike most the extant literatures which neglect the CFO who are responsible for the generation and quality of the accounting information and they just study the general manager and chairman change, this paper study the correlation between earning management and CFO turnover. This study expands the existing research on executive change and earnings management. Second, according to the senior echelons theory, this paper discusses the relation between the background characteristics of the successor CFO and the earnings management degree. The findings are helpful for the selection, appointment of CFO successor and provide a new perspective for the relevant stakeholders to screening listed company earnings quality.Due to the limitations of the data acquired, this paper only consider the characteristics of the successor including succession timing successor source, age and gender, ignoring other characteristics which possible impact earnings management. Second, the type (such as conventional and unconventional change) of the CFO change dose not distinguished in this paper. Third, because a relatively low number of the research samples, the study on realtion between successor background characteristics and earnings management adopts the absolute value of the discretionary accruals to measure the quality of earning management rather than to distinguish the direction of earning management. These aspects will affect the applicability of the conclusion.