Does Appointing a Former CFO as CEO Influence a Firm’s Financial Reporting, Disclosure and Tax Policies?

• In Event: Doctoral Interchange Session #3 (Friday morning)
  In Paper Session: Doctoral Interchange Session #3 (Friday Morning)

Abstract

We study CEO successions for S&P1500 firms from 2003 to 2008 to examine whether CEOs with former CFO experience systematically influence firms’ accounting policies (i.e., financial reporting, disclosure, and tax policies). Using firm-fixed effect regressions, we find that an ex-CFO is associated with smaller discretionary accruals, greater conservatism, more accurate management forecasts, improved analyst information environment, and lower cash effective tax rates. We also examine whether the appointment of an ex-CFO is associated with a demand for higher quality of financial information and whether such appointment is associated with systematic changes in accounting policies. We find that the decision to appoint an ex-CFO as CEO is consistent with higher demand for financial information before the appointment (e.g., increases in institutional ownership and analyst following) and is generally followed by predictable changes in firms’ accounting policies after the appointment.

Authors

• Steven Roy Matsunaga, University of Oregon

• Shan Wang, University of Oregon

• Eric Yeung, Cornell University