Angela K. Gore
University of Oregon
Steven R. Matsunaga
University of Oregon
Eric Yeung
University of Georgia
Abstract: We examine relations between the firm?s ability to monitor the CFO and weights on performance measures for CFO cash compensation. We define the firm's ability to monitor the CFO as a function of the complexity of the CFO's responsibilities, as measured by foreign investment and acquisition activity, and the financial expertise of the monitors, measured by the presence of a finance committee and whether the CEO has a financial background.
For highly complex firms, we find that higher financial expertise on the part of the monitors is associated with a shift towards accounting earnings and away from market returns. These results suggest that the ability of monitors to understand the accounting implications of complex financial transactions increases the informativeness of accounting earnings as a performance measure for CFOs.
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