Purpose Drawing on structural and cyclical power theories, this study aims to investigate how Chief Executive Officer–Chief Financial Officer (CEO–CFO) power dynamics shape financial reporting quality. In particular, the authors focus on CFO co-option, defined as the CFO being appointed after the CEO, and examine whether this arrangement weakens CFO independence and leads to higher levels of accounting reporting complexity. Design/methodology/approach Using a panel data from US public firms between 2011 and 2020, the authors empirically examine the relationship between CFO co-option and accounting reporting complexity. The authors use ordinary least squares model to test the hypotheses and apply additional procedures, including entropy balancing, propensity score matching and alternative fixed-effects specifications, to assess the robustness of the results. Findings The authors find that firms with co-opted CFOs exhibit significantly higher levels of accounting reporting complexity, consistent with structural power theory. The authors also find that this effect is particularly pronounced in the early years of a CFO’s tenure, aligning with the cyclical power theory. In addition, the authors show that the increase in complexity is concentrated in the notes to the financial statements rather than in the financial statements themselves, suggesting a strategic use of complexity in less scrutinized disclosures. Overall, CEO influence over a co-opted CFO appears to increase financial opacity through greater accounting reporting complexity in annual reports. Practical implications This study highlights governance concerns when CFOs are appointed after the CEO. The findings reinforce the need for governance mechanisms to promote independent CFO appointments and strengthen oversight during the early years of a CFO’s tenure to limit managerial opportunism. In addition, the results underscore the importance of stronger regulatory oversight of narrative disclosures, particularly through more explicit guidance on XBRL footnote tagging, to limit discretionary obfuscation and enhance transparency for investors. Originality/value To the best of the author’s knowledge, this study is the first to investigate the impact of CFO co-option on accounting reporting complexity. This paper contributes to the literature on executive power dynamics by linking CFO co-option to the complexity of financial reporting. More broadly, it extends research on executive power by integrating structural and cyclical theories, emphasizing the role of CEO–CFO relationships in shaping reporting quality.
Abdulsalam et al. (Mon,) studied this question.