The effectiveness of chief financial officer board membership in improving corporate investment efficiency

Yin Liu (), Huiqi Gan () and Khondkar Karim ()
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Yin Liu: The College at Brockport State University of New York
Huiqi Gan: University of Massachusetts Lowell
Khondkar Karim: University of Massachusetts Lowell

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 2, No 4, 487-521

Abstract: Abstract The key roles of the Chief Financial Officer (CFO) in firm operating performance, corporate strategic choices, and corporate governance have been increasingly emphasized in recent decades. In this study, we empirically investigate the relation between CFO board membership and corporate investment efficiency to determine whether CFO presence on the board reduces firms’ propensity to over- or underinvest. We find that CFO board membership is significantly associated with a decreased level of corporate over- and underinvestment. Further, the positive effects of CFO board membership on corporate investment efficiency are greater for firms with greater information asymmetries. Last but not least, we find that the improved investment efficiency experienced by firms with CFOs on their boards has a positive effect on the firms’ future performance. Overall, we find that CFO board membership is associated with improved investment efficiency and firms’ future profitability. By documenting the real business impact of CFO board membership on investment efficiency and firms’ future performance, we add bricks to the literature on board composition and how it influences firms’ strategic choices and performance. Our findings suggest that having CFOs on boards could benefit firms’ investment practices, which directly relate to corporate strategic performance.

Keywords: CFO board membership; Overinvestment(s); Underinvestment(s); Investment efficiency; Board performance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 M41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-020-00953-2

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