Prior literature explores the impact of chief financial officer (CFO) co-option on corporate policies and financial decisions; however, limited research examines CFO co-option in the context of auditing. Drawing on managerial hegemony and stakeholder–agency theories, this paper investigates whether CFOs co-opted after the appointment of the current chief executive officer (CEO) are associated with audit report lag (ARL).
The authors collect data on 204 companies listed on the Tehran Stock Exchange from 2013 to 2020 and use ordinary least squares regression and structural equation modeling (SEM) to test the research hypotheses.
The results show that CFO co-option is significantly positively associated with ARL, suggesting that companies with co-opted CFOs experience longer ARL. This association is more pronounced for state-owned enterprises (SOEs) than non-SOEs and is stronger when clients are audited by private auditors. Moreover, SEM results indicate that real earnings management partially mediates the relationship between CFO co-option and ARL, whereas accrual earnings management does not serve as a mediator. The results are robust to a set of sensitivity tests.
By providing first-hand empirical evidence on the relationship between CFO co-option and ARL, this study deepens our knowledge of the consequences of CFO co-option, particularly in emerging markets with weak corporate governance systems and greater managerial discretion. It also contributes to our understanding of managerial agency problems and their broader implications.
