Office politics: what difference do CFO social ties make to financial restatements?

CFO Social Ties and Financial Restatements

Financial restatements are the need to restate financial figures as a result of accounting errors, noncompliance with generally accepted accounting principles, fraud or misrepresentation.

The Melbourne Centre for Corporate Governance and Regulation's Associate Professors Bo Qin and Flora Kuang have joined with a team of international researchers to discover whether, and how, a chief financial officer's (CFO) social ties affects the likelihood of financial restatements.

Based on social capital theory, the research team predicts that a CFO who has strong social ties with other senior executives within a company will reduce restatements through improved information sharing, trust building, and goal alignment.

Using a partitioned sample analyses, they will also explore whether financial restatements are concentrated in firms with significant communication barriers, including weaker CFO hierarchical influences, greater business complexity, and larger demographic dissimilarities between the CFO and other executives.

Impact

This project is aiming to contribute to research in the corporate leadership field by providing initial evidence on how a CFO’s social interactions with other senior executives help improve financial reporting quality.

Investigators

Associate Professor Srikanth Paruchuri, Pennsylvania State University

Associate Professor Kelvin Liu, Northeastern University