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.
The ordinary least square, two-stage least-squares and propensity score matching regressions are performed with various proxies for firm performance and accruals quality.
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.
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.
The authors would like to thank participants at the 2017 Financial Markets and Corporate Governance Conference (Wellington) for their helpful comments. We thank Hanh Tran and Nargess Golshan for their research assistance.
The first author would like to acknowledge the funding support from Accounting and Finance Association of Australia and New Zealand (AFAANZ), School of Accounting and Curtin Business School (Curtin University).
Duong, L., Evans, J. and Truong, T. (2020), "Getting CFO on board – its impact on firm performance and earnings quality", Accounting Research Journal, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/ARJ-10-2018-0185Download as .RIS
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