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This thesis investigates the extent to which CFOs matter to corporate cash policies, M\&A and accounting practices. We construct an index that attempts to capture the ability of the CFO to influence financial decision-making. This index is based on a set of CFO-specific attributes such as work/board experience, educational level, tenure and remuneration. In the three chapters that follow, we use this index to examine how CFOs affect several corporate policies. Chapter 2 examines the effect of Chief Financial Officers (CFOs) on corporate cash holding policies. We find that firms with strong CFOs hold substantially less cash than firms with weaker CFOs, ceteris paribus. This finding is robust to the inclusion of several governance characteristics, firm, CEO and CFO fixed-effects in our models; it also goes through a range of static and dynamic panel data estimators and multiple methods to control for endogeneity. Overall, our analysis suggests firms with strong CFOs are well positioned to hold less cash due to their relatively weak precautionary motive and superior ability to raise external funds even in periods of financial stress. We also offer some evidence supporting the view that strong CFOs reduce cash in an attempt to mitigate agency problems associated with free cash flow. Chapter 3 examines the role of Chief Financial Officers (CFOs) in mergers and acquisitions (M\&A). Our results show that the firms with stronger CFOs (high levels of our CFO index) are more likely to make acquisitions and, when they do, these are mainly financed with cash. We also provide evidence supporting the view that strong CFO firms exhibit better post-acquisition operating performance. These results are robust to the inclusion of several governance characteristics, firm and CEO fixed effects; as well as to tests addressing endogeneity concerns. Chapter 4 examines how Chief Financial Officers (CFOs) affect earnings quality. We find that earnings quality is positively related to the CFO index. Specifically, firms with strong CFOs are associated with lower discretionary accruals. This relation is robust to the inclusion of firm-, CEO- and governance-level controls, including fixed effects. The negative effect of strong CFOs on accruals seems to persist even in firms whose CEOs have greater incentives and power to manage earnings, which suggests that CFOs may play an important monitoring role in the governance process. Chapter 5 concludes this thesis, providing an overview of empirical results, outlining their implications and discussing avenues for future research. |
