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Powerful CFOs and investment efficiency

Author

Listed:
  • Md Kamrul Hasan Chy

    (University of Central Arkansas)

  • Obed Nana Buadi

    (The University of Texas at El Paso)

Abstract

We examine how powerful CFOs influence investment efficiency, addressing the gap in research on the role of CFO power in corporate financial decisions. Existing literature primarily focuses on CEO power, often highlighting its contribution to overinvestment, but the impact of CFO power is less understood. Using data from S&P 1500 firms from 2001–2019, we assess the relationship between CFO power and investment outcomes. Our results indicate that powerful CFOs tend to adopt conservative investment strategies, leading to underinvestment and negatively impacting investment efficiency. These results highlight the significant role of CFOs in shaping corporate investment policies and suggest that the power dynamics within the executive team can critically influence firm outcomes.

Suggested Citation

  • Md Kamrul Hasan Chy & Obed Nana Buadi, 2025. "Powerful CFOs and investment efficiency," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(1), pages 119-140, March.
    • Handle: RePEc:spr:jecfin:v:49:y:2025:i:1:d:10.1007_s12197-024-09698-3
    DOI: 10.1007/s12197-024-09698-3
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    More about this item

    Keywords

    Powerful CFOs; Investment efficiency; Underinvestment; Overinvestment; Corporate governance; Product market;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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