A Study On The Correlation Of The Chief Financial Officer Power And The Earnings Management

The Chief Financial Officer system is one of the corporate governance mechanism that the listed companies in our country are promoting at present.The Chief Financial Officer plays an important role in the listed companies.They not only expertise in traditional accounting,but also engaged in the strategic decision-making,internal control,information management and other fields.Therefore,the Chief Financial Officer will significantly affect the accounting information quality of listed companies.Specifically,will the influence of the Chief Financial Officer power improve the quality of accounting information,or reduce the quality of accounting information?This article selected the earnings management as an observation point to check out the relationship between the Chief Financial Officer power and the earnings management.To solve the problem,based on principal-agent theory and corporate governance theory,we read and analysed the relevant domestic and international literature concerning the relationship between the Chief Financial Officer power and the earnings management.Using the data of 2007—2014 in Shanghai and Shenzhen A-share listed companies,we found that Chief Financial Officer can affect the quality of the accounting information of listed companies.Moreover,there is a negative correlation between the power of Chief Financial Officer and the earnings management.More importantly,distinguishing different attributes of earnings management,and different situations of the listed companies,the relationship between Chief Financial Officer power and the earnings management will also vary.The results show that:(1)the Chief Financial Officer power can significantly reduce the likelihood the accrual earnings management;In other words,there is a significant negative correlation between the Chief Financial Officer power and the accrual earnings management;(2)there is a significant negative correlation between the Chief Financial Officer power and the real earnings management;Specifically,the Chief Financial Officer power lead to lower the discretionary expenditures;The Chief Financial Officer power does not change the sales manipulation(accelerating the timing of sales and/or generating additional unsustainable sales through increased price discounts or more lenient credit terms)and productions costs(to produce more goods than necessary to meet expected demand to lowering fixed costs per unit).(3)distinguishing different attributes of the earnings management,if the companies have the opportunistic earnings management motivation,this motivation will weaken the significant negative correlation between the Chief Financial Officer power and the accrual earnings management.(4)the changed head of the listed company will strengthen the significant negative correlation between the Chief Financial Officer power and the earnings management because the changed head of the listed company will further enhance the Chief Financial Officer discourse power in finance and accounting.Finally,on the basis of relevant theoretical analysis and empirical research results,this paper puts forward the following suggestions:(1)The listed companies should strengthen the system of the Chief Financial Officer and define the financial director relative power scientifically.(2)The listed companies should strengthen the Chief Financial Officer professional ethics training and financial management skills training,to improve the moral quality and professional ability of the Chief Financial Officer,which can effectively guarantee the quality of the annual report disclosed by the listed companies,and to maintain the internal and external investors' interests and promote the development of the capital market of China.(3)The listed companies should improve the corporate governance mechanism to ensure the external constraint mechanism and the internal supervision mechanism to be effectively implemented,which can play the role of the corporate governance and improve corporate governance efficiency.