Firm-Manager Matching and the Tradeoffs of CFO Accounting Expertise
56 Pages Posted: 25 Oct 2016 Last revised: 23 Sep 2019
Date Written: September 20, 2019
We present evidence that, while individuals with accounting expertise bring key skills to financial reporting responsibilities of the CFO position, they tend to lack educational and career experiences relevant to non-accounting responsibilities (e.g., operations and strategy). We find that these differences in CFO backgrounds shape executive employment decisions in several ways, highlighting tradeoffs of CFO accounting expertise. Firms with greater demand for non-accounting expertise are less likely to hire an accounting expert CFO, consistent with ex ante firm-manager matching. Ex post, accounting expert CFOs are less likely to become CEOs, and significant declines in firm-manager fit after appointment predict CFO turnover and other compensating changes in the composition of the senior management team. Collectively, the results suggest important tradeoffs inherent to CFO accounting expertise that shape the structure of the senior management team.
Keywords: Firm-manager matching, CFO expertise, top management team, Chief Financial Officer
JEL Classification: M41, M54, J24
Suggested Citation: Suggested Citation