Job Market Paper
I examine the effect of Chief Accounting Officers (CAOs) on financial reporting quality. I proxy for financial reporting quality using severe and non-severe restatements, abnormal accruals, just meeting or beating analyst forecasts, and internal control weaknesses (ICWs). I find that firms with CAOs have lower rates of severe restatements, just meet-or-beats, and ICWs. These results are consistent with the CAO improving financial reporting quality. I further structure tests that control for the firm’s endogenous choice to appoint a CAO, results are generally consistent. I also test financial reporting quality by examining earnings management around seasoned equity offerings. I find that accruals earnings management is mitigated in CAO firms. Next, I check CAO, CEO, and CFO compensation and career concerns to determine if differences in incentives drive these findings. CAO turnover occurs in the years around restatements and ICWs. I also find that CAO tenure is negatively associated with severe restatements, abnormal accruals, just meet-or-beats, and ICWs. Overall, these results suggest that having a designated CAO is associated with various improvements in financial reporting quality and that these improvements are related to the CAO's tenure within the firm.