CFO Career Concerns and Strategic Decisions: An Empirical Analysis of M&As

https://doi.org/10.1080/09638180.2023.2291405 .

79 Pages Posted: 20 Dec 2023

See all articles by Sebastian Firk

Sebastian Firk

University of Groningen - Department of Accounting and Auditing

Yannik Gehrke

University of Goettingen

Sven Richter

affiliation not provided to SSRN

Michael Wolff

University of Goettingen (Göttingen)

Date Written: December 8, 2023

Abstract

Chief financial officers (CFOs) have become increasingly involved in strategic decisions. The literature has emphasized the potential benefits of this development, delineating CFOs as impartial advisors who ensure economically conscious decisions. Our study, however, suggests that the career concerns of CFOs create signaling incentives that detrimentally influence the outcomes of strategic decisions. Based on the merger and acquisition (M&A) decisions of S&P 500 firms between 2005 and 2018, our results show that CFOs with higher signaling incentives (i.e., at earlier and later career stages) are associated with lower M&A returns, higher M&A premiums, greater M&A activity, and riskier M&A features (e.g., large, diversified, or cross-border deals). This association is stronger when chief executive officers are more likely to delegate decision authority to CFOs, whereas it is weaker when CFOs have a higher reputation, strong long-term incentives, and when there is strong external monitoring. Our results further indicate that the labor market highly values the M&A experience of CFOs and only lightly punishes CFOs involved in value-destroying M&As.

Keywords: Chief financial officer, career concerns, implicit career incentives, M&As, career horizon

JEL Classification: G30, G34, M51

Suggested Citation

Firk, Sebastian and Gehrke, Yannik and Richter, Sven and Wolff, Michael, CFO Career Concerns and Strategic Decisions: An Empirical Analysis of M&As (December 8, 2023). https://doi.org/10.1080/09638180.2023.2291405 ., Available at SSRN: https://ssrn.com/abstract=4658736

Sebastian Firk (Contact Author)

University of Groningen - Department of Accounting and Auditing ( email )

Postbus 72
9700 AB Groningen
Netherlands

Yannik Gehrke

University of Goettingen ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Sven Richter

affiliation not provided to SSRN

Michael Wolff

University of Goettingen (Göttingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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