Managers: Their Effects on Accruals and Firm Policies

Douglas V. DeJong · Zhejia Ling

124 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Corporate Finance and Governance Accounting and Organizational Management

Abstract

Abstract This paper investigates whether top executives have significant individual‐specific effects on accruals that cannot be explained by firm characteristics. Exploiting individual executive and firm data from a period of 37 years, we find that individual executives play a significant role in determining firms’ accruals. We examine whether executives’ effects on accruals are related to their personal styles on firm policies, investment, financing and operating decisions. Our results show that individual executives’ effects on accruals are more correlated with their operating decisions than investment and financing decisions. We next investigate whether managers themselves also have a personal style for directly affecting accruals. We compare effects exerted by CEOs to CFOs. We find CEOs are more likely to affect accruals through firm policy decisions and CFOs are more likely to affect accruals through accounting decisions. CFOs tend to report more ‘solid’ earnings than CEOs, i.e., CFOs are more likely to push accruals to zero.

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References

2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2005Performance matched discretionary accrual measures 2005The economic implications of corporate financial reporting 2001The theory and practice of corporate finance: evidence from the field 2003Earnings management and investor protection: an international comparison 2002Audit committee, board of director characteristics, and earnings management 2003Managing with Style: The Effect of Managers on Firm Policies 1985The effect of bonus schemes on accounting decisions

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