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Does CFO Board Membership Benefit Shareholders? The Case of Corporate Acquisitions

Published online by Cambridge University Press:  13 February 2024

Zhong Chen Open the ORCID record for Zhong Chen [Opens in a new window] ,
Zicheng Lei Open the ORCID record for Zicheng Lei [Opens in a new window]  and
Chunling Xia Open the ORCID record for Chunling Xia [Opens in a new window]
Zhong Chen*
Affiliation:
King’s College London King’s Business School
Zicheng Lei
Affiliation:
King’s College London King’s Business School zicheng.lei@kcl.ac.uk
Chunling Xia
Affiliation:
Queen Mary University of London School of Business and Management c.xia@qmul.ac.uk
*
zhong.1.chen@kcl.ac.uk (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We investigate whether chief financial officers (CFOs) serving on U.S. corporate boards benefit shareholders in M&A transactions. We find that acquisitions made by firms with CFOs on boards have significantly better acquirer announcement returns. This is due to the CFO director’s ability to select targets with better strategic and financial fit. CFO board membership can create shareholder value if there are effective governance regimes restraining managerial entrenchment and CFOs’ interests are closely aligned with those of shareholders through equity ownership. Furthermore, sitting on boards enables CFOs to secure more and cheaper financing for their acquisitions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 28
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors would like to thank two anonymous referees, Siu Kai Choy, Tarik Driouchi, Mara Faccio (the editor), Jiying Liu, Duc Duy Nguyen, Sushil Sainani, and conference participants at the 2022 FMA Annual Conference, the 2022 FMA Asia/Pacific Conference, the 2022 FMA Europe Conference, and the 2022 FMARC Annual Conference for very helpful comments and suggestions.

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