The impact of powerful CFOs in M&A: evidence from U.S. acquisitions

Abstract

Practitioners and researchers have long been interested in gaining a better understanding of the factors driving Mergers & Acquisitions (M&A) outcomes. While studies are increasingly adopting an upper-echelons perspective in this regard, the role of individual decision-makers, other than the chief executive officer, remains poorly understood. In this study, we investigate how acquiring companies’ chief financial officers (CFOs), who possess greater managerial power to influence crucial decisions in the acquisition process, can affect M&A outcomes. We expect greater decision authority to enable CFOs to contribute valuable financial expertise at different stages of a deal, ultimately enhancing the takeover’s overall value creation. Utilizing a large sample of U.S. transactions that occurred from 1996 to 2018, our results suggest that more powerful CFOs improve M&A performance in large deals where shareholders presume CFO financial expertise will be especially valuable. Further analyses of specific mechanisms through which CFOs improve M&A outcomes reveal the importance of distinguishing between the multiple dimensions through which CFOs gain influence in a firm. In this context, we find that CFOs' M&A experience (i.e., their expertise power) is the most persistent dimension of improved deal outcomes, as reduced takeover premiums and lower third-party advisory fees make clear.