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Vishal Baloria

Associate Professor, Accounting
University of Connecticut

Are Two Chiefs Better Than One? Financial Executives and Layoffs

Date: Thursday, September 19, 2024
Time: 5:00 PM – 6:30 pm
Location: Bronfman building, Room 410

Abstract

We examine the real effects of firms delegating financial accounting duties to a Chief Accounting Officer (CAO), thereby allowing the Chief Financial Officer (CFO) to allocate attention to operational duties. We find CAO usage is associated with a significant reduction in the likelihood of a layoff. This negative association is stronger among firms reporting an accounting loss, which serves as a powerful trigger to divest employees, and firms with longer Chief Executive Officer (CEO) tenure, who develop prosocial preferences for employees over time. To address non-random usage of CAOs among firms, we exploit state-level adoption of CPA mobility provisions that increase the labor supply of CAOs and document lower layoffs after the passage of CPA mobility provisions in a firm's headquarter state. The collective evidence suggests that placing distance between CFOs and financial accounting, through use of a CAO, can discourage layoffs, in line with the hypothesis that managerial attention on financial accounting rules that treat employee costs as expenses and liabilities drive firm layoff decisions.