The influence of the CFO Tenure and Gender

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This study examines the influence of the Chief Financial Officer (CFO) tenure and gender to manage their firms’ earnings during their tenure as CFO. This relation is tested on firms listed on the S&P 500 index over the years 1992-2010. This research examined earnings management by absolute values of both accruals-based and real earnings management. The findings support the expectation that CFOs make use of real earnings management in the last year of CFO tenure and in the first three years of the new CFO tenure, compared with a sample of non-changing CFOs. This result is supported by previous research on managerial tenure (Ali & Zhang, 2015), where departing executives use earnings management to increase earnings during their last year of tenure. And where new appointed CFOs try to favorably influence the market’s perception by overstating their firms’ earnings or through assigning poor earnings to their predecessor (Pourciau, 1993). However, findings show no evidence of the use of accrual-based earnings in the last year of CFO tenure and in the first three years of the new CFO tenure. Therefore, the results only suggest that the CFO tenure has a positive association with real earnings management. To the extent that discretionary expenses are used to help CFOs hide the good/poor performance of the company to move a part of the positive/negative current earnings in the last year of CFO tenure or in the first three years of CFO tenure. Additional, the research has shown a significant relationship between CFO gender and the use of real earnings management. Contrary to expectations, female CFOs are more likely to use real earnings management to overstate earnings compared with male CFOs. However, no significant evidence was found for gender influence in relation to accrual-based earnings management. These findings are of interest to investors, regulators, and academics with respect to the identification of earnings management and consequences of CFO tenure and gender.
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