CFO appointment and debt-equity choice

Suchismita Mishra (Department of Finance, College of Business Administration, Florida International University, Miami, Florida, USA)
Bakhtear Talukdar (Department of Finance and Business Law, College of Business and Economics, University of Wisconsin Whitewater, Whitewater, Wisconsin, USA)
Arun Upadhyay (Department of Finance, College of Business Administration, Florida International University, Miami, Florida, USA)

Managerial Finance

ISSN: 0307-4358

Publication date: 17 May 2019



There is some evidence that firms appoint internal candidates to exploit their unique firm specific knowledge and that the type of appointments may have signaling value to the market. However, these studies are limited to chief executive officer appointments whereas other top executives could also play an important role in corporate decision making. The purpose of this paper is to focus on the chief financial officer (CFO) appointments and firm’s debt-equity choice.


The authors employ a multiple regression framework. To control for potential endogeneity, the authors use an instrumental variable approach with both two-stage least squares and generalized method of moments estimators.


The authors find that firms with internal CFO hires issue more equity than firms that hire from the external labor market. The authors also find that internal CFOs significantly reduce information asymmetry (IA), which may lower market risk and the cost of financing through equity issues. Furthermore, consistent with the value maximizing role of reduced IA the authors find that this effect is concentrated in value firms. In firms with higher IA this preference for equity by the internal CFO may be weaker as even internal CFOs will prefer debt financing for its disciplining role and to reduce IA. A subsample analysis with growth firms shows this diminishing impact on the financing choice of an internal CFO.


This study provides important information about the influence the CFO has on a firm’s capital structure decisions.



Mishra, S., Talukdar, B. and Upadhyay, A. (2019), "CFO appointment and debt-equity choice", Managerial Finance, Vol. ahead-of-print No. ahead-of-print.

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