Implied Tradeoffs of CFO Accounting Expertise: Evidence from Firm-Manager Matching

59 Pages Posted: 25 Oct 2016 Last revised: 15 Apr 2020

See all articles by Darren Bernard

Darren Bernard

University of Washington - Department of Accounting

Weili Ge

University of Washington - Michael G. Foster School of Business

Dawn A. Matsumoto

University of Washington - Department of Accounting

Sara Toynbee

University of Texas at Austin

Date Written: April 1, 2020

Abstract

We present evidence that, while individuals with accounting expertise bring key skills to financial reporting responsibilities of the CFO position, they tend to lack educational and career experiences relevant to non-accounting 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 non-accounting 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 after appointment predict CFO turnover and other compensating changes in the composition of the senior management team. Accounting expert CFOs are also less likely to become CEOs, 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.

Keywords: Firm-manager matching, CFO expertise, top management team, Chief Financial Officer

JEL Classification: M41, M54, J24

Suggested Citation

Bernard, Darren and Ge, Weili and Matsumoto, Dawn and Toynbee, Sara, Implied Tradeoffs of CFO Accounting Expertise: Evidence from Firm-Manager Matching (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=2858681 or http://dx.doi.org/10.2139/ssrn.2858681

Darren Bernard

University of Washington - Department of Accounting ( email )

PACCAR Hall
4273 E Stevens Way NE
Seattle, WA 98195-3200
United States

Weili Ge

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Dawn Matsumoto (Contact Author)

University of Washington - Department of Accounting ( email )

224 Mackenzie Hall, Box 353200
Seattle, WA 98195-3200
United States
206-543-4454 (Phone)
206-685-9392 (Fax)

Sara Toynbee

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
440
Abstract Views
3,050
rank
79,018
PlumX Metrics