Review of Quantitative Finance and Accounting

, Volume 52, Issue 1, pp 325–345 | Cite as

The influence of CEO and CFO power on accruals and real earnings management

  • Terry A. Baker
  • Thomas J. LopezEmail author
  • Austin L. Reitenga
  • George W. Ruch
Original Research


In this study, we examine the effect of CEO and CFO power on both accruals and real earnings management (AEM and REM, respectively), and the extent to which CEO and CFO power mitigate the effect of one another on AEM and REM. We further examine whether the passage of the Sarbanes-Oxley Act (SOX) altered these effects. In the pre-SOX period, we find that AEM (REM) is greater when the CEO (CFO) is powerful relative to the CFO (CEO). In the post-SOX period, however, we find that the effect of relative CEO power on AEM subsides, whereas the effect of relative CFO power on REM persists. Additionally, we find evidence to suggest that powerful CFOs inhibit the AEM preferences of powerful CEOs in both the pre- and post-SOX periods. Finally, we find evidence to suggest that powerful CEOs inhibit the REM preferences of powerful CEOs in the pre-SOX period, but not in the post-SOX period. Collectively, our results suggest that the power of the CEO relative to the CFO is an important factor in the both the type and magnitude of earnings management.


Earnings management Accruals Real earnings management CEO power CFO power 


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Terry A. Baker
    • 1
  • Thomas J. Lopez
    • 2
    Email author
  • Austin L. Reitenga
    • 2
  • George W. Ruch
    • 3
  1. 1.School of BusinessWake Forest UniversityWinston-SalemUSA
  2. 2.Culverhouse School of Accountancy, Culverhouse College of Commerce and Business AdministrationUniversity of AlabamaTuscaloosaUSA
  3. 3.John T. Steed School of Accounting, Price College of BusinessUniversity of OklahomaNormanUSA

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