CFO career prospect and M&A – An Analysis of the S&P 500

Abstract

These days, the chief financial officer (CFO) is expected to be a business partner to the chief executive officer (CEO) who actively participates in major corporate decisions going beyond the scope of financial reporting. To keep up with these expectations, CFOs need to signal their ability to cope with portfolio decisions such as mergers and acquisitions (M&As). Based on this, we expect that early-in-career CFOs have career incentives to heavily engage in M&As and to even advocate risky M&A deals. Hence, we predict that a longer career prospect of CFOs is negatively associated with M&A returns. Our empirical results support this reasoning. We further substantiate our finding by revealing several moderating influences. Specifically, our empirical evidence suggests that the negative relation between CFO career prospect and M&A returns is more pronounced if M&A activity is high and less pronounced if the CFO already advanced in his / her career. Overall, our findings highlight that the evolving CFO role incentivizes the CFO to take bold actions that could be detrimental to firm performance.