Benefit or Burden? A Comparison of CFO and CEO Outside Directorships

Journal of Business Finance and Accounting, Forthcoming

Posted: 9 Jan 2021

See all articles by Sarfraz Khan

Sarfraz Khan

University of Louisiana at Lafayette

Elaine Mauldin

University of Missouri Trulaske College of Business

Date Written: November 20, 2020

Abstract

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

Khan, Sarfraz and Mauldin, Elaine, Benefit or Burden? A Comparison of CFO and CEO Outside Directorships (November 20, 2020). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3734536

Sarfraz Khan (Contact Author)

University of Louisiana at Lafayette ( email )

Department of Accounting
214 Hebrard Blvd.
Lafayette, LA 70508
United States

Elaine Mauldin

University of Missouri Trulaske College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-884-0933 (Phone)

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