Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies

65 Pages Posted: 18 Mar 2012 Last revised: 5 Dec 2016

See all articles by Claudia Custodio

Claudia Custodio

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); European Corporate Governance Institute (ECGI); London School of Economics & Political Science (LSE) - Financial Markets Group

Date Written: June 20, 2013

Abstract

This research studies the role of CEOs with a career background in finance. Firms that appoint financial expert CEOs hold less cash and more debt, and engage in more share repurchases. Financial expert CEOs are also more financially sophisticated. They are less likely to use one companywide discount rate instead of a project-specific one. They also manage financial policies more actively, communicate better with financial markets and their firm investments are less sensitive to firm cash flows. We use exogenous changes to business conditions and find financial expert CEOs are able to raise external funds even when credit conditions are tight. They were also more responsive to the dividend and capital gains tax cuts in 2003 and paid out more to shareholders. Newly appointed financial expert CEOs also seem more likely to replace incumbent CFOs. We do not find evidence that personal networks are driving these results. Finally, we analyze CEO-firm matching based on financial experience and provide evidence that is mostly consistent with a conclusion that employment histories of CEOs greatly matter for corporate policies.

Keywords: CEO-firm matching, CEOs characteristics, financial expertise, cash holdings, capital structure

JEL Classification: G30, G31, G32

Suggested Citation

Custodio, Claudia and Metzger, Daniel, Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies (June 20, 2013). Available at SSRN: https://ssrn.com/abstract=2155106 or http://dx.doi.org/10.2139/ssrn.2024017

Claudia Custodio

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Daniel Metzger (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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