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Implied Tradeoffs of Chief Financial Officer Accounting Expertise: Evidence from Firm-Manager Matching

Author

Listed:
  • Darren Bernard

    (Department of Accounting, Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Weili Ge

    (Department of Accounting, Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Dawn Matsumoto

    (Department of Accounting, Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Sara Toynbee

    (Department of Accounting, McCombs School of Business, University of Texas at Austin, Austin, Texas 78712)

Abstract

We present evidence that although individuals with accounting expertise bring key skills to the financial reporting responsibilities of the chief financial officer (CFO) position, they tend to lack educational and career experiences relevant to nonaccounting responsibilities (e.g., operations and strategy). Assuming boards’ perceptions of CFO accounting expertise are correct on average, we provide evidence of tradeoffs of CFO accounting expertise by examining how differences in CFO backgrounds shape executive employment decisions. Firms with greater demand for nonaccounting expertise are less likely to hire an accounting expert CFO, consistent with ex ante firm-manager matching. Ex post, significant declines in firm-manager fit predict CFO turnover and other compensating changes in the composition of the senior management team. Accounting expert CFOs are also less likely to become chief executive officers, suggesting that CFO experience does not fully mitigate these tradeoffs. Collectively, the results suggest important tradeoffs inherent to CFO accounting expertise that shape the structure of the senior management team.

Suggested Citation

  • Darren Bernard & Weili Ge & Dawn Matsumoto & Sara Toynbee, 2021. "Implied Tradeoffs of Chief Financial Officer Accounting Expertise: Evidence from Firm-Manager Matching," Management Science, INFORMS, vol. 67(9), pages 5776-5799, September.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:9:p:5776-5799
    DOI: 10.1287/mnsc.2020.3738
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    References listed on IDEAS

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