[ohiostategirlcpa]

Maybe this is a more interesting topic to debate…

From WSJ:

CFOs with accounting backgrounds in high-growth industries invest less in research and development, make lower capital expenditures and are less likely to obtain external financing for their businesses, according to a paper to be published in an upcoming issue of the Journal of Accounting and Economics.

It shows that such “accounting CFOs,” CPAs, or those who worked previously as an auditor or controller before their appointments, are more effective at controlling costs at low-growth industries than those without such backgrounds.

The study looked at how the two kinds of CFOs performed in high-growth industries, such as pharmaceuticals, electronics, and business services as well as low-growth industries, such as transportation, machinery and petroleum.

The upshot was that companies with accounting CFOs tended to be more risk averse. CFOs with accounting backgrounds in high-growth industries on average were associated with a 7.4% lower investment expenditure at their company and a 14.6% lower likelihood of financing. That might hurt growth.

Professor Rani Hoitash of Bentley University, his younger brother Udi Hoitash, an associate professor of Northeastern University, and assistant professor Ahmet Kurt of Suffolk University, examined a sample size of about 1,800 CFOs, looking at how they performed between 2000 and 2010.

With data more than five years old, Mr. Kurt said he suspects boards may have already shifted CFO hiring practices. “Companies are making some changes,” he said. “Some firms are realizing that accounting CFOs are not working for them.”

In the low-growth industries, accounting CFOs showed a tendency towards greater cost efficiency. When revenues were increasing in such industries, according to the paper, the accounting CFOs showed a 19% increase in cost efficiency. “It’s associated with their conservative nature,” said Mr. Kurt in an interview. “They hold the costs down when sales are growing.”

In low-growth industries, accounting CFOs were not linked with investment expenditures, external financing or cash holdings, according to the study.

Mr. Kurt said the study built on previous research that showed accounting CFOs were linked to fewer restatements at the companies they work at, as well as fewer discretionary accruals. The key was distinguishing between the kinds of businesses the CFOs were heading, because each requires different skillsets. “When we sliced the sample into high-growth and low-growth it was a bit of a surprise,” he said.

The study doesn’t weigh in on whether the accounting CFOs’ tendencies toward risk aversion is good or bad. “This may increase firm value in some cases and lower it in others,” it reads.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[Missy]

Well this rings true at least with me lol. Yes I'm the idiot who “fired” our printing company and bought a high end printer that cost about 1/4 of what the company used to spend per year on brochures and stays late printing and folding them myself lol. I do think accountants are much more conservative by nature but think in most organizations they're balanced out in management by other genres (my president is a sales guy, spend, spend, spend) and yes the company is in growth mode, so it's good I only get a vote, and not total control. I do think I temper them well on occasion.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[ohiostategirlcpa]

It is well known that lawyers don't make good CEOs because they are trained to see risks and liabilities, and so avoid them.

I did not think this would apply to CPAs and CMAs too. Yes, we are trained to understand the risks and benefits of financial and operational leverage, but I think that knowledge would be a benefit to an organization, not a detriment.

Yes, the company might not grow as fast, but it won't fail as quickly either. I wonder if the study included bankruptcies in its analysis.

Though I think it is a personality issue. Before studying accounting I did not know that accountants were thought to be risk-averse. I thought they were just knowledgeable about business. I think there is cultural baggage involved here, that has nothing to do with the science of accounting.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[Missy]

I don't think the article says cpa's are a detriment to anything other than growth, in fact it says in low growth organizations an accounting cfo results in greater efficiencies.

But I do think people who in general are risk averse go into accounting as a profession. The number one answer when you ask someone why they chose accounting as a career is job security. There may be other answers too but it's considered a “safe” career to enter.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

Replies