Essays on CFO and Firm Financial Policies

This thesis provides a novel insight into Chief Financial Officers’ (CFOs) attributes and moderating roles of the board of directors on firm financial policies in the UK. It consists of three main studies. Throughout these studies, I follow the upper echelon theory and agency theory for building expectations on CFO attributes and firm financial policies. Furthermore, I follow research dependency theory and gender-based social role theory to relate the moderating role of the board on CFO decisions.

The first study examines the potential effect of a CFO’s generalist career experience on firm cash holdings using a sample of 8,280 observations of UK-listed firms from 1999−2019. The baseline results show that firms with more generalist CFOs opt for more cash holdings than those with less generalist CFOs. The analyses suggest that firms with generalist CFOs hold more cash due to their willingness to engage in risk-taking through more investment (for R&D-intensive firms and overinvestment in general) with less costly internal finance. This extra cash holding by generalist CFO is significant only in firms with less dominant CEOs, confirming the CEO dominance and principles of reciprocity from social exchange theory. Furthermore, I show that female non-executive independent directors (INED) negatively moderate the positive relationship between generalist CFO and firm cash holdings. The results are consistent with different robustness checks. The results have important policy implications on the recruitment and compensation of generalist CFOs and persuade better corporate governance with influential monitoring roles by female INEDs on boards.

The second study investigates the potential effect of Chief Financial Officers’ (CFOs) generalist career experience on firm dividend policy using a sample of 8,289 observations of UK-listed firms from 1999 to 2019. The baseline results confirm that firms with more generalist CFOs opt for less dividend payment than firms with less generalist CFOs due to their willingness to take risks with internal finance. Furthermore, such dividend-cut decision is more pronounced for firms with shorter-tenured CFOs, as with longer-tenure, CFOs become specialists in their current firms and behave accordingly inside firms. Interestingly, the findings show that female board representation positively moderates the relationship between generalist CFO and firm dividend due to their monitoring role and ethical commitment towards stakeholders. Such dividend cut is prominent only in firms with less powerful CEOs. The results are consistent with different endogeneity checks and robustness checks. Overall, my results suggest that CFO generalist career experience is a key attribute and highlight the importance of gender composition of the board in curbing excessive managerial risk-taking.

The third study focuses on the contemporary debate on whether female CFOs, while deciding on non-price terms of debt like debt maturity, enjoy privilege with favourable terms and choose long term debt (Francis, 2014) or choose short term debt due to their ethical nature and transparency (Datta, Doan and Toscano, 2021) . On top of that, my third study explores the first empirical investigation of the interplay between the female CFO and the financial expertise of the CEO and board of directors for a firm debt maturity policy. With a dataset of 7,255 observations of listed firms on the London Stock Exchange from 1999 to 2019, my results show that female CFOs take more short-term debt similar to the findings of (Datta, Doan and Toscano, 2021). In subsample analyses, such positive association is significant only for firms with lower CFO tenure and lower firm financial constraints suggesting that female CFOs are not risk takers, as expected to pierce through the glass cliff, instead, it is their mere ethical attitude to receive external monitoring with refinancing. The results are consistent with different robustness checks. Finally, the CFO stock option significantly alleviates the positive association between female CFOs and short-term debt. With more stock options, the CFO becomes more of a shareholder and may be prone to avoid unnecessary external supervision. Further analyses show that financial sector expert CEOs and boards curtail female CFOs’ short-term debt-taking. The study contributes to the literature by observing the conditions under which female CFOs lead to significant effects on firm outcomes and how the financial expertise of the CEO and board contribute as a mediating factor for corporate governance.

In summary, the thesis contributes to the literature on when and how CFOs significantly influence firms’ internal corporate financing decision like liquidity management and dividend payout decision as well as external financing decisions like debt maturity structure within the CEO and board dynamics.