In old debate made new post-Sarbox, research shows that CFO directors seem to bring firms higher earnings quality and better internal control, though there are drawbacks.
The percentage of CFOs serving on their companies’ own boards is not large, thanks in part to Sarbox guidelines promoting board independence. But the logic of those guidelines -– which equate independence with earnings quality -– may not hold true in the case of the finance chief.
It’s an old debate, of course. But it is made new in post-Sarbox terms by Jean C. Bedard and Rani Hoitash of Bentley University’s Department of Accountancy and Udi Hoitash of Northeastern University. They looked at 2004-2007 records from 7,034 publicly traded companies, and found that the 549 of them that picked their own CFOs for board seats were less likely to report internal control weaknesses as described under Sarbox Sections 302 and 404.
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