CFO accounting education on the choice of earnings management

This paper investigates whether CFO's educational background could influence his/her firm's level of earnings management because CFO plays a direct role in overseeing financial reporting. Based on agency theory and upper echelons theory, we discuss whether a CFO with/without an accounting degree could incentivize him/her to choose one over another among the three types of earnings management. Using a US sample between 1999 and 2016, we empirically find that CFOs with an accounting degree are associated with a higher degree of accrual earnings management and a higher degree of real earnings management through overproduction while CFOs without any accounting degree are associated with a higher degree of classification shifting. Our results hold robust when we implement a difference-in-difference test on the executive turnover from a CFO without any accounting degree to a CFO with an accounting degree. Finally, we find that CFOs with CPA certification behave more ethically in all three types of earnings management. Our study enriches the management demographic factor influence literature, unveils the role of CFO in choices of earnings management, supports ethics requirements in business education, and provides implications to executive hiring as well to audit practices.