CFO credentials, stock market signaling, and firm performance
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 26 May 2022
Issue publication date: 2 May 2023
Abstract
Purpose
This paper examines how “strategic” chief financial officers (CFOs) with an elite MBA (i.e. elite CFOs) influence (1) stock market reaction to CFO hiring announcements (ex ante measure) and (2) post-hiring firm performance (ex-post measure).
Design/methodology/approach
This paper utilizes a comprehensive, proprietary database with information about the educational qualifications and prior professional experience of 1,340 CFOs hired during the period 1994–2014. For each CFO, the authors hand-collected data on the CFO's prior experience as well as CFO's educational profile. The authors also identified the date of CFO hiring from financial press articles. To evaluate performance, the authors consider two different, yet complementary performance measures: (1) the stock market reaction, a priori measure and (2) a traditional measure of performance, which is a post-facto metric related to firm performance.
Findings
The results show that hiring CFOs with scarce and strategic human capital elicits a positive market response and leads to significant improvement in firm performance. Further, firms with greater managerial discretion benefit more from hiring elite CFOs. The results hold after controlling for chief executive officer (CEO), CFO, top managment team (TMT), and board characteristics.
Originality/value
This study shows converging and mutually consistent results about what specific types of CFO human capital create firm value and, more importantly, show that such value-creation is only in the case of small firms and high growth firms. The study also advances the stream of literature that contrasts the relative benefits of specialist versus generalist qualifications.
Keywords
Acknowledgements
Funding: The author(s) received no financial support for the research, authorship, and/or publication of this article.
Conflicts of interest/Competing interests: The authors declare that they have no conflict of interest.
Citation
Datta, S., Doan, T., Guha, A., Iskandar-Datta, M. and Kwon, M.-J. (2023), "CFO credentials, stock market signaling, and firm performance", International Journal of Managerial Finance, Vol. 19 No. 3, pp. 539-571. https://doi.org/10.1108/IJMF-11-2021-0571
Publisher
:Emerald Publishing Limited
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