Firm-Manager Matching and the Tradeoffs of CFO Accounting Expertise
47 Pages Posted: 25 Oct 2016 Last revised: 27 Jan 2019
Date Written: January 22, 2019
We examine whether CFO accounting expertise involves significant tradeoffs to the firm and influence firm-manager matching decisions. We expect and find evidence that accounting experts lack educational and career experiences in non-accounting areas that would provide them with expertise necessary to fulfill non-accounting related responsibilities of the CFO position (e.g., operations and strategy). We find these differences in expertise represent an important tradeoff to firms as reflected in a variety of executive employment decisions, including the CFO hiring decision––firms with greater demand for accounting (non-accounting) expertise are more (less) likely to hire an accounting expert CFO. We also link significant declines in firm-manager fit after initial appointment to a higher probability of CFO turnover and other compensating changes in the composition of the top management team. Collectively, the results suggest boards recognize the tradeoffs in CFOs’ skill sets and accounting expertise is a carefully weighed attribute of CFO hires that affects firm-manager fit in multiple executive positions.
Keywords: Firm-manager matching, accounting expertise, Chief Financial Officer
JEL Classification: M41, M54, J24
Suggested Citation: Suggested Citation