CFO Finance Network Centrality, Errors and Internal Control Material Weaknesses

CFOs finance networks matter in determining certain accounting and reporting outcomes. Drawing on social network theory, this study shows that CFO centrality in a network of financial experts is inversely related to the occurrence of restatements due to errors and disclosure of internal control material weaknesses. This proposes that a central position in a network of financial experts provides CFOs with superior access to accounting related information, potentially due to their role as information transmitter, their ability to control information and the amount of direct and indirect information provider. The findings propose that more central CFOs seem to benefit by incorporating the higher quality accounting information to resolve fiduciary challenges. Additionally, the study shows that even for firms which are interlocked with a firm which reported errors or disclosed material weaknesses in the resently, a more central position in a finance network serves as remedy by decreasing the probability of future errors and internal control material weakness disclosures. Further, network centrality has a larger effect on the measured accounting outcomes compared to the simple measure of director interlocks. Alternative explanations that information access facilitates disguising of mistakes is not supported by the data. Taken together, results indicate the added value of examining CFOs larger network when considering determinants of errors and internal control material weakness disclosures.

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