Earnings Quality and Incentives: The Impact of Gender and CFO Compensation on Earnings Management: An Empirical Study of the US Market

Elin Maria Cecilie Ertvaag & Cathrine Eldrup Rise

Student thesis: Master thesis


This thesis investigates the impact of CFO compensation and the role of gender on the incentives to manipulate earnings. We construct a panel comprising 855 US listed firms included in the S&P 1,500 index, in the period 1998-2014. We apply the Modified Jones Model (1995) to measure absolute discretionary accruals, which serves as our proxy for earnings management. We find evidence of a positive relationship between cash pay, - and option holding sensitivity and discretionary accruals. We do not find sufficient evidence on stock holding sensitivity, suggesting similar relation. This indicates that incentives to manipulate accruals derive from compensation schemes reflecting an asymmetric relation between wealth and firm performance. We find the SOX act of 2002 to have a positive impact on the scope of managerial accounting discretion. Nevertheless, we cannot conclude whether the Act has been powerful enough to mitigate the associated incentives to modify earnings, when compensated with stock options. In our investigation on the role of gender, we provide weak evidence of female CFOs using discretion to manipulate earnings, regardless compensation, to a greater extent than male CFOs. We find similar association when options are allocated to females. Nonetheless, we cannot find sufficient evidence to support this relation.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2017
Number of pages122
SupervisorsAleksandra Gregoric