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Getting CFO on board – its impact on firm performance and earnings quality

Author

Listed:
  • Lien Duong
  • John Evans
  • Thu Phuong Truong

Abstract

Purpose - This paper aims to investigate the impact of Australian Chief Financial Officers (CFOs) as board insiders on firm performance and earnings quality with reference to agency theory and theory of friendly board. Design/methodology/approach - The ordinary least square, two-stage least-squares and propensity score matching regressions are performed with various proxies for firm performance and accruals quality. Findings - Firms with CFOs as board insiders experience significantly lower firm performance and earnings quality. In firms with powerful CEOs, the negative impact of CFO board membership on earnings quality is further magnified. Additionally, the negative impact of CFO board membership on firm values and earnings quality is only present in firms with bigger boards or firms with less outside directors. The findings are consistent with the agency perspective and in sharp contrast to the US market. Originality/value - This is the first Australian study to examine the impact of CFO board membership on firm performance and earnings quality. The findings suggest that the monitoring of executives is best done by a small or independent board and that the insider board membership should be optimised.

Suggested Citation

  • Lien Duong & John Evans & Thu Phuong Truong, 2020. "Getting CFO on board – its impact on firm performance and earnings quality," Accounting Research Journal, Emerald Group Publishing Limited, vol. 33(2), pages 435-454, February.
    • Handle: RePEc:eme:arjpps:arj-10-2018-0185
    DOI: 10.1108/ARJ-10-2018-0185
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    More about this item

    Keywords

    CFO board membership; Firm performance; Earnings quality; CEO power; Board monitoring; G34; M41;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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