Chief financial officer power and conditional accounting conservatism

This study investigates the influence of chief financial officer (CFO) power on firms' accounting conservatism. Drawing on managerial power and self-focus theories, we find a significant negative relationship between CFO power and conditional accounting conservatism. We further demonstrate that the documented relationship is most pronounced in firms with weak corporate governance and high information asymmetry. We explore the mechanism related to CFO compensation, finding that powerful CFOs with high remuneration incentives tend to reduce accounting conservatism, likely to maximize their compensation. Our results remain robust to various sensitivity tests and endogeneity concerns, addressed through the Heckman self-selection model, Difference-in-Differences test, and alternative variable measurements. In additional analysis, we find that stronger social ties between CFOs and CEOs, proxied by age and gender similarity, are associated with lower accounting conservatism. Our study emphasises the motivation of powerful CFOs in influencing the asymmetric recognition of good and bad news and contributes to both managerial power and financial reporting literature and has policy implications.