Do CFO career concerns matter? Evidence from IPO financial reporting outcomes

Abstract

We find that Chief Financial Officers (CFOs) with greater career concerns are more diligent and conservative in preparing financial statements during an Initial Public Offering (IPO). Additional tests exploiting exogenous variation in managerial career concerns suggest that our documented relations are not sensitive to unobservable omitted factors. Furthermore, we document that CFOs who are relatively more concerned about their future job prospects are more sensitive when there is greater scrutiny or higher litigation risk and are less likely to succumb to undue pressures from influential shareholders to exaggerate the firm's prospects. Finally, we show that CFOs with longer decision horizons prefer more transparency during the IPO process, which in turn, translates to superior post-IPO performance and better labor market outcomes than their counterparts. Overall, our findings indicate that career concerns play a disciplining role during IPOs and that CFOs exploit these high-visibility events to accelerate their career trajectory.