Chipping Away at Financial Reporting Quality

Chief financial officers are responsible for managing the financial reporting process. We test whether the quality of a firm’s financial reports is a function of the effort expended by the CFO. Using golfing records to measure leisure consumption, we first show that CFOs consume more leisure when they have lower economic incentives. We show further that high levels of leisure consumption by CFOs are associated with lower financial reporting quality. These results hold when using firm fixed effects and when using weather quality as an instrument for the amount of golf play, suggesting that the relationship is causal. Higher levels of leisure consumption are also associated with shorter conference calls with a more uncertain tone, suggesting that the qualitative content of firms’ communications also suffers when CFOs consume high levels of leisure. Finally, the effects of lower quality reporting are demonstrated by results linking CFO leisure with greater analyst forecast dispersion and weaker earnings response coefficients.