Do Accountants Make Better Chief Financial Officers?

• In Event: Corporate Governance, CFOs, and Audit Committees

Abstract

We investigate whether and how the accounting background of chief financial officers (CFOs) enhances their performance. Previous research predominantly focused on the association between CFOs with accounting background and financial reporting quality, finding that CFOs with accounting background outperform other CFOs. Yet, CFO responsibilities are myriad and go beyond financial reporting. Hence, we extend prior research through an investigation of CFOs’ other set of responsibilities, i.e. over corporate finance. We find that CFOs with accounting background are less likely to issue new equity, invest less in R&D and capital expenditures, return less cash to investors through dividends and stock repurchases, and overall retain higher cash. These results are consistent with a more conservative behavior of accountant CFOs and are primarily driven by firms operating in high-growth industries, where investment needs are greater. Consequently, we find that firms whose CFOs have accounting background are associated with lower (higher) firm value in high (low) growth industries. Thus, the board and the CEO should recognize that a one-size-fit-all strategy is not suitable for selecting a CFO, and accounting background of the CFO is not always value enhancing.

Authors

• Rani Hoitash, Bentley University

• Udi Hoitash, Northeastern University

• Ahmet Can Kurt, Northeastern University