A study of CFO and CEO attributes : cash and operating cycles as determinant measures of success and effect of c-suite members' social network capital on tail risk
University of Wisconsin--Whitewater
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The chief executive officer (CEO) is the face of an organization. Nonetheless, since the Sarbanes-Oxley Act of 2002, the importance of the chief financial officer (CFO) has increased (Alkhafaji, 2007; Schminke, Arnaud, & Keunzi, 2007). The CEO and CFO are the top two executive positions on the top management team (Hambrick & Mason, 1984). Essay 1 examines similar characteristics of the CFO and CEO against various firm performance metrics, with emphasis on cash cycle and operating cycle. The theory of cash management (Gitman, Moses, & White, 1979) emphasizes the importance of cash flow management as a means for a company to maintain its solvency. The responsibility to maintain solvency primarily belongs to the CFO. The performance metrics have not been attributed to any particular characteristics of either the CFO or CEO. This analysis examined which attributes contribute to a CFO or CEO having more influence on firm performance. The characteristics showing significance are professional degree, certified public accountant (CPA) licensure, and industry experience. More CFO characteristics showed significance than CEO characteristics, indicating more firm performance success contributed by the CFO. There is a growing literature stream on CFOs, and with increased accountability being placed on the CFO, more will need to be known about this position and the characteristics that contribute to a successful CFO. Essay 2 continues the study of CFOs and CEOs. I analyzed the impact of the CEO’s and CFO’s social network capital on tail risk (defined here as market risk—the average return below the 10th percentile of the yearly distribution of the predicted returns from the market model—and idiosyncratic risk—the average return below the 10th percentile of the yearly distribution of the residuals from the market model; Srivastav, Keasey, Mollah, & Vallascas, 2017). The CEO and CFO are the most dominant members of the top management team, driving organization outcomes by way of strategic initiatives (Amoozegar, Pukthuanthong, & Walker, 2017). Relationships between the CEO, CFO, and a firm’s stakeholder groups form to create a social network that can evolve into social capital (Kanihan, Hansen, Blair, Shore, & Myers, 2013; Pappas, Ongena, Izzeldin, & Fuertes, 2017). I tested whether the CEO and CFO, with high social capital, can reduce the probability of the company stock persistently landing in the bottom 10% of yearly returns. Top management team is supported by upper echelons theory (Hambrick & Mason, 1984). Social network is supported by social capital theory (Lin, Burt, & Cook, 2001). Tail risk is supported by the Fisher-Tipper theorem of extreme value theory (Basrak, 2011). There literature is void of these three variables being examined together. Analyzing the relationship between CEO and CFO social networks and tail risk is important because extreme negative returns will have a negative effect on market capitalization and valuations. In addition, analyzing the relationship between the C-suite members’ social network and tail risk will provide an indication of the network’s persuasive ability, for example, to obtain additional financing. Both CFO total connections and CEO total connections were significant for market risk. This result was surprising because it is unusual for CEOs and CFOs to have influence over long-term market effects (French, 20003). Additional research will be needed to explore this phenomenon.
Corporations -- Finance
Chief financial officers
Chief executive officers
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