Benefit or Burden? A Comparison of CFO and CEO Outside Directorships
Journal of Business Finance and Accounting, Forthcoming
Posted: 9 Jan 2021
Date Written: November 20, 2020
We study the association between chief financial officer (CFO), compared to chief executive officer (CEO), outside board directorships and their home firm strategic investments, capital management, and overall performance. Using a sample of firms from 2003-2014, we find only about nine percent of CFOs sit on outside boards, while about 24 percent of CEOs sit on outside boards. We find robust evidence that CFO outside directorships are associated with fewer underinvestment problems, lower sensitivity between cash holdings and cash flows, and higher long-term performance at their home firm, consistent with positive knowledge transfer by the CFO. On the other hand, we find little evidence of knowledge transfer for CEO outside board directorships, consistent with concerns that executives are too busy to hold outside directorships. Our findings support a need to recognize that outside directorships could provide benefits for some, but not all, executives. For CFOs our findings support the argument that outside directorships provide CFOs an opportunity to network with and learn from other executives and directors, enabling these CFOs to improve practices in their home firm.
Keywords: Chief financial officer, Chief executive officer, Board of directors, Investing policies, Knowledge transfer
JEL Classification: M12, M21, G32
Suggested Citation: Suggested Citation