Do CFOs Matter? International Evidence from the M&A Process

The stereotypical image of the chief financial officer (CFO) as a mere bean-counter who only settles the books and tracks regulatory compliance no longer applies. Today, the CFO’s role has evolved from back-office treasurer to strategic business partner of the chief executive officer (CEO) and valued adviser to the board of directors on the firm’s critical issues – especially mergers and acquisitions (M&A).

In the last two decades, more than 790,000 M&A deals have been announced worldwide, with a total value of over $57 trillion.[1] Traditionally, CEOs are considered most responsible for the development of M&A strategy. In most modern firms, however, the CFO now plays an equally important role. CFOs are involved in every stage of the M&A process, from due-diligence to integration of the target. Several academic surveys highlight how CFOs are responsible for identifying financially attractive targets, designing financing strategies for the acquisition, and focusing on the identification and realization of post-merger synergies.[2] In a new study, we ask, “Do CFOs Matter?” and empirically examine the role of the CFO in M&A. Specifically, we investigate whether CFOs influence the likelihood of completing an acquisition, deal terms and process, and subsequent operating and financial performance.

We created an innovative index that captures the ability of a CFO to influence M&A decision-making.  Our index is based on a set of CFO-specific attributes such as board membership, outside board experience, level of financial expertise, compensation, seniority, and relative pay. Based on this index, we separate our sample firms into two groups. One group has an influential CFO and one does not. From this comparative analysis we obtain a number of important results.

Our findings suggest that firms with more influential CFOs are more likely to complete acquisitions than their peers with less influential CFOs. We then investigate the effect of CFOs on deal terms and process. We find that an influential CFO is associated with deals that are more commonly cash financed, focused on domestic targets, and smaller in relative size. Influential CFOs tend to shorten the due diligence process (i.e. total number of days between the deal announcement and deal completion) due to their greater efficiency in screening a target for profitability and potential synergies. Further, these CFOs are associated with targets that have superior financial reporting quality. These same CFOs offer lower premia for their targets, perhaps because they have more negotiation and deal-making experience.

We then examine the post-acquisition operating cash flow performance across firms with high and low CFO influence. We find that the operating performance of high CFO-influence firms improves significantly over pre- to post-acquisition years. In contrast, we fail to observe significant changes in the operating performance for firms with less influential CFOs.  Further, we analyze the market reaction to merger announcements as a second measure of synergy gains. We find that the market values an influential CFO where the merger is complex due to size or international scope. A set of robustness tests confirms the stability of our findings, and we continue to conclude that the effect of CFOs on M&A activity is both profound and permanent.

Our study has several implications. First, it is one of only a studies that examine the importance and effect of a critical but subordinate executive. We believe that this approach has relevance for the analysis of other corporate executives such as the head of Investor Relations, chief strategy officer, or the leader in charge of innovation and effective corporate governance. Our findings also provide insight into the executive labor market and the design of executive compensation. Finally, our results provide new perspectives on the market for acquisitions and the process that surrounds business combination activities.  We provide new insights into the determination of offer premia, the nature of the due diligence process, and the market’s reaction to deal complexity.  Indeed, we expand the study of M&A beyond traditional CEO and board considerations, and introduce a new kind of decision-maker and influencer into our analysis – the CFO.


[1] Source IMAA analysis;

[2] Mukherjee, T., Kiymaz, H., & Baker, H. (2004). Merger Motives and Target Valuation: A Survey of Evidence from CFOs. Journal of Applied Finance, 14(2), 7-24.

This post comes to us from professors Stephen P. Ferris at Ball State University and Sushil Sainani at the University of Liverpool. It is based on their recent article, “Do CFOs Matter? International Evidence from the M&A Process,” available here.

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