CFO Style Still Makes a Difference

The tightening grip of regulations, along with the constraints of GAAP, might seem to offer little leeway for personal characteristics when CFOs make accounting and reporting choices. How much, some wonder, can a finance chief's own style or philosophy impact corporate decision-making, anyway?

Plenty, it turns out.

At least, that's the conclusion of a recent of 359 finance executives from a range of firms, conducted by a trio of researchers in the Northwest. "We find that, across a wide range of accounting choices, individual CFOs are an important determinant of accounting practices," write Weili Ge and Dawn Matsumoto, both professors at the University of Washington in Seattle, and Jenny Li Zhang, a professor at the University of British Columbia.

In addition, the study measures how the effect of certain personal characteristics of the finance chief appears to be stronger under conditions that allow more finance discretion and that place higher job demands on the CFO.

Prior to this research, much of the academic study of accounting focused on the impact of the company itself -- such as its size or growth rate. Another body of established research, meanwhile, looked at the characteristics of CEOs, on policies concerning mergers and acquisitions, for instance, Ge says in a telephone interview with CFOworld. Few researchers had focused on CFOs, or the accounting choices they must make.

The Washington and British Columbia researchers certainly suspected, based on research that others had conducted, that individual characteristics played a role in finance decision-making. Still, it wasn't clear at the outset whether this would hold true, in a measurable way, when it came to the choices made in the reporting process, Ge notes. "We were interested in accounting choices," she says, "because they're different than other corporate decisions, as there's more constraints."