Evidence on the Impact of a CEO's Financial Experience on the Quality of the Firm's Financial Reports and Disclosures

Abstract:     
We investigate whether there are systematic differences in a firm's financial reporting and disclosure policies associated with having a Chief Executive Officer who has previously served as a Chief Financial Officer (i.e., an ex-CFO). We find that firms run by ex-CFOs tend to have more income-decreasing (conservative) accruals and that analysts' forecasts for firms managed by ex-CFOs are more accurate, less dispersed, and less volatile. In addition, firms run by ex-CFOs issue fewer good news earnings forecasts, but the good news forecasts they issue tend to be more precise. We also find similar results when we examine changes in reporting and disclosure policies for firms that appoint CEOs with CFO experience relative to firms that appoint CEOs without such experience. Overall, our evidence is consistent with ex-CFOs utilizing more conservative accounting policies and providing more precise earnings guidance to analysts and suggests that the quality of a firm's financial disclosures is a function of the CEO's financial experience.

Keywords: CEO, CFO, Disclosure Quality

JEL Classifications: M41, M45, M44, G12, G29, M54

Working Paper Series