CFO Outside Directorships: Simply a Distraction or an Opportunity for Development?
63 Pages Posted: 18 Sep 2017 Last revised: 24 Feb 2020
Date Written: February 2020
The demand for chief financial officer (CFO) service on corporate boards has grown substantially in recent years, leading to questions about how these outside board appointments might affect a CFO’s ability to fulfill her responsibilities at her home firm. Contrary to concerns about CFOs being distracted from their primary duties, we find that with few exceptions, CFO outside board service is beneficial, on average, in that it leads to higher home firm financial reporting quality (FRQ) and a higher likelihood of managment guidance. In additional analyses, we find that this on average benefit is related to learning opportunities specifically linked to FRQ and management guidance, and that the only detected deterioration in financial reporting practices is an increase in non-core accounting misstatements when outside board service time commitments are higher. Our results should be of interest to investors, auditors, and board members considering the implications of CFO outside board service.
Keywords: Outside Directorships, Financial Reporting Practices, Financial Reporting Quality, Financial Statement Misstatements, Material Weaknesses in Internal Controls, Management Earnings Forecasts, Chief Financial Officers, Boards of Directors, Audit Committees
JEL Classification: G34, M41
Suggested Citation: Suggested Citation