Do Ceo/Cfo Certifications Provide a Signal of Credible Financial Reporting?

Over the last thirty years, numerous parties have discussed whether CEOs and CFOs should certify the appropriateness of their financial statements. Despite the interest in this issue, there is limited empirical research on whether a voluntary disclosure system for CEO\CFO certifications provides a signal of the credibility of financial reporting. In this study, I examine whether a voluntary disclosure system for CEO\CFO certifications provides a signal of the credibility of their financial reporting. I use the level of earnings management as the measure of the level of credible financial reporting. I find that firms that include a voluntary CEO\CFO certification on the appropriateness of the financial statements are less likely to practice income increasing earnings management. Section 302 of the Sarbanes-Oxley Act requires that CEOs and CFOs certify the appropriateness of their financial statements. The findings of this study suggest that Section 302 may provide value by enhancing the credibility of those companies that did not provide certifications under a voluntary system