CFO financial expertise and corporate governance concerns: Evidence from S & P SmallCap 600 Index

Abstract

Purpose

The purpose of this study is to examine the association between the financial expertise of the chief financial officer (CFO) and concerns about corporate governance.

Design/methodology/approach

Consistent with prior research, the authors used four variables, including certified public accountant (CPA) certification, Master of Business Administration degree, age of CFO and length of CFO tenure, to measure CFO’s financial expertise. The authors hypothesize a negative association between CFO expertise and concerns about corporate governance.

Findings

Regression analysis revealed that the CPA certification is negatively associated with governance concerns at a significant level. The results suggest that stakeholders show less concerns about a company’s corporate governance mechanism when the CFO has a CPA certification. In particular, the results support the recommendation by the American Institute of Certified Public Accountants that a CFO of a public firm should have a CPA certification.

Originality/value

The study is important in the following ways. First, the study delivers new evidence on the link between CFO financial expertise and corporate governance. This contributes to the CFO financial expertise literature and the corporate governance literature. Second, according to Standard and Poor’s, equity index investing has grown more popular over the past 30 years. The study delivers useful information to index investors who invest in S & P SmallCap 600 Index. Third, regulators have put a large amount of resources to discover ways to strengthen firms’ corporate governance. Thus, the results should be of interest to policy makers who design and implement guidelines on corporate governance mechanisms.

Citation

Sun, L., Johnson, G. and Rahman, F. (2015), "CFO financial expertise and corporate governance concerns: Evidence from S & P SmallCap 600 Index", International Journal of Law and Management, Vol. 57 No. 6, pp. 573-581. https://doi.org/10.1108/IJLMA-08-2014-0048