Firm-Manager Matching and the Tradeoffs of CFO Accounting Expertise

Abstract

We examine the tradeoffs of CFO accounting expertise and their role in firm-manager matching decisions. Although prior work examines the positive effects of accounting expertise on several financial reporting outcomes, there is little evidence on the tradeoffs this expertise entails, much less how firms compensate for these tradeoffs. We conjecture that acquiring accounting expertise requires costly tradeoffs in terms of acquiring other skills, including operational knowledge and strategic expertise. We find that these tradeoffs are reflected in firms’ hiring decisions ex ante and affect several ex post employment decisions. Collectively, the results suggest accounting expertise is a carefully weighed attribute of CFO hires that shapes and is shaped by the composition of the top management team.