CFO Country of Origin and Accounting Quality. A Cross-Country Investigation

Abstract

Prior research has analyzed accounting quality around the world only working on institutional differences mainly at country level. Little research has been devoted to top management cultural values (here defined as CFO’s country of origin), which has turned out to be able to generate unique results on firms’ outcomes. In this work, building a unique hand collected dataset based on 954 unique CFOs across Europe and 4,478 firm-year observations I investigate the effect of CFO country of origin on accounting quality in the European Union. My findings show first, as a validity test, that there is a CFO fixed effect on accounting quality also in a cross-country setting (i.e. outside the US). Then, I show that in the EU foreign CFOs are able to foster accounting quality relative to local peers. Moreover, working on economies clusters I find that CFOs working in insider economies, but born elsewhere (outside this area) are able to marginally improve accounting quality for the firm they work with. On the contrary, this does not apply if a CFO born in an insider economy works outside his area of birth. Finally, working on CFO turnover, I find that overall CFO changes have an effect on accruals quality level. Nonetheless, cross-sectional tests reveal that such changes are significant when CFO turnover happens from CFO born in a low (high) IP country to a CFO born in a high (low) IP country, where accounting quality improves (worsens).

Keywords: Accounting Quality, CFO, CFO culture, Country of Origin, Earnings quality

JEL Classification: M41, M40