No. 48: The role of CEOs versus CFOs in firms’ financial misreporting


This study examines whether, and to what extent, individual CEOs and CFOs affect firms’ financial misreporting after controlling for known time-varying firm-specific determinants, year fixed effects, and firm fixed effects. We construct a manager-firm matched panel data set that tracks individual CEOs and CFOs across firms over the period 1995-2016 and use three different methods to identify manager-specific effects, i.e., the manager mobility method, the connectedness method, and the spell method. Irrespective of the method applied, we document that both CEO-specific and CFO-specific effects explain a statistically and economically significant proportion of the cross-sectional variation in firms’ financial misreporting. Our results further indicate that CFOs play an economically larger role in firms’ financial misreporting than CEOs, and this CFO effect is even more pronounced for fraudulent irregularities. Overall, our study highlights the important role of CEOs and, especially, CFOs in determining firms’ beyond-GAAP reporting outcomes.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.