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

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.

CFO gender in curbing CEO dominance on overpriced acquisition premiums

“…Previous studies discuss the monitoring role of the board of directors in mergers and acquisitions. Thus, we control for the percentage of independent board members and board size as these factors are expected to improve monitoring and reduce the acquisition premium (Duong et al. , 2020).…”

Mujeres en los Directorios de empresas chilenas: ¿presión o convicción?

“…Las investigaciones asocian la variable de género con la rentabilidad/rendimiento y manejo de resultados (Earnings Management / EM) y la diversidad de género en los directorios han mostrado relaciones positivas y negativas. Respecto de trabajos que muestran un efecto positivo de la presencia de género femenino en los directorios y los EM, podemos mencionar a Duong, et al, 2020o a Fant et al 2019, que investigaron el género femenino en los directores y los EM dentro de la industria de los bancos.…”

Untitled

“…The presence of CEOs on the management board or board sub-committees is a proxy of CEO power (Evans & Truong, 2020). The agency theory suggests that such an arrangement can compromise a board's monitoring role of the CEO (Harjoto & Jo, 2009), since the CEO has the power to direct board discussions towards their personal interests .…”