Managers: Their Effects on Accruals and Firm Policies
Speaker
Abstract
| This study focuses on top managers’ effects on accounting accruals by asking whether individual managers can in part explain accounting accruals. We further investigate these manager effects on accruals by asking whether and how managers affect accruals through their decisions on firm policies and other channels that include accounting choices. Extending the basic research design of Bertrand and Schoar (2003), we show that managers exert a significant individual-specific influence over accruals and are important determinants of accruals. We estimate manager fixed effects for their firm policy choices (investing, financial and operational) and show that a manager’s economic policy decisions affect the firm’s accounting accruals. Similarly, we show that a manager affects accruals through other channels including accounting choices. Finally, we separate and investigate CEO and CFO effects on accruals. For accruals that include firm policy decisions, we find that CFOs have the same influence as CEOs on accounting accruals, but the magnitude of the accruals is smaller for CFOs than for CEOs, i.e. CFOs tend to push accruals to zero, suggesting that CFOs tend to report more “solid” earnings than CEOs. This result holds independent of the career path of the CEO and CFO. Controlling for managers’ policy decisions, CEOs push accruals higher and CFOs push them lower and the absolute size of the push is larger for CFOs. |
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| Paolo Perego |
