Do Good Accountants Make Bad CFOs?

New research shows that a strong accounting background doesn’t always translate into a successful role as a chief financial officer. Companies need to avoid fitting a square background into a round industry hole.


Accounting professionals looking at the chief financial officer (CFO) position as their ultimate career goal should be very careful what type industry they pick to climb the corporate ladder, according to recently released academic research.

Companies in high growth industries – such as technology and pharma – often experience decreased value when the CFO is a career accountant, making any tenure in the C-suite short lived and ultimately disappointing.

“In essence, you are what you do. If you have practiced accounting for many years you become risk averse,” says Rani Hoitash, associate professor of accountancy at the McCallum Graduate School of Business’ at Bentley University in Waltham, Mass. “That is not always bad, but in industries where there is a need to invest in value creation rather than worry about a short term hit to your earnings… it takes a CFO who is willing to take on risk.”

According to the working paper titled “Do Accountants Make Better Chief Financial Officers?”, CFO’s with accounting backgrounds are much more conservative that CFOs with either investment banking or finance.They are consistently less likely to issue new equity, invest less in R&D and capital expenditures, return less cash to investors through dividends and stock repurchases, and overall retain higher cash, the research shows.

“These results are consistent with a more conservative behavior of accountant CFOs and are primarily driven by firms operating in high-growth industries, where investment needs are greater,” the paper says, adding that CFOs with accounting background are associated with lower firm value in high growth industries. “Thus, the board and the CEO should recognize that a one-size-fit-all strategy is not suitable for selecting a CFO, and accounting background of the CFO is not always value enhancing.

Ahmet Kurt, a co-author and a visiting professor of accounting at Northeastern's University’s D'Amore-McKim School of Business, provides few examples on the industries that are considered high- and low-growth. Specifically, the pharmaceutical products and medical equipment are both considered high-growth industries, where investments in research and development are crucial. On the other hand, retail as well as petroleum and natural gas are considered industries with lower growth opportunities.


“The most striking results of our research are that companies in high growth industries need more active CFOs that are engaged with -- and are more active in – performing their corporate finance responsibilities, say Rani Hoitash. “Our results clearly show that, in high growth industries where CFOs have accounting backgrounds, there is a decrease in value. In these industries you need to invest more, take more risk and be a little less conservative and as a result having accounting backgrounds can be detrimental to value creation.”


Specifically, the research says that equity issuance for the average firm operating in high-growth industries is about 12 percent lower when the CFO has accounting background, investment level are 20 percent lower and the investor payout level (through stock repurchases and dividends) is 14 percent lower than that of the average firm in the sample.

“Accounting education and the entire career path of accountants is built to avoid risk”, says co-author Udi Hoitash, assistant professor of accounting and the Denise and Robert DiCenso Term Fellow at Northeastern's University’s D'Amore-McKim School of Business in Boston. “Working in accounting related jobs – such as an auditor or a controller makes people more conservative over a long period of time.”

But the impact of an accounting background in a CFO can be flipped, and a conservative CFO that holds back one company from growth may blossom under the correct circumstances in another company or another industry, says Udi Hoitash. “For example, companies in stable industries with lower growth opportunities benefit from controlling for costs and from having more accurate financial reports. In such industries, CFOs with accounting backgrounds are a good fit and can add to the overall value of the firm.”