Avoid Firms with CFOs that Golf All the Time

/Avoid Firms with CFOs that Golf All the Time

Avoid Firms with CFOs that Golf All the Time

By | 2017-08-18T17:09:52+00:00 December 17th, 2015|Research Insights|3 Comments

Chipping Away at Financial Reporting Quality


Chief financial officers are responsible for managing the financial reporting process. We test whether the quality of a firm’s financial reports is a function of the effort expended by the CFO. Using golfing records to measure leisure consumption, we first show that CFOs consume more leisure when they have lower economic incentives to work. We show further that higher levels of CFO leisure are negatively associated with a number of indicators of financial reporting quality. The use of firm fixed effects and an instrumental variable analysis suggest that the observed relations are causal. Further tests indicate that higher leisure consumption is associated with shorter conference calls with a more uncertain tone. Finally, the effects of lower quality reporting are demonstrated by results linking CFO leisure with analysts’ forecast dispersion and weaker earnings response coefficients.

Alpha Highlight:

Biggerstaff, Cicero and Puckett (2014) show that a CEOs’ golfing frequency is negatively correlated with firms’ operating performance and firm value. In this paper, the authors look at the relationship between a CFO’s golfing frequency and a firms’ financial reporting quality. The punchline: CFO behavior matters.

The sample consists of 385 CFOs from 2008 to 2012, and the authors collect the golfing data from the United States Golf Association (USGA).

The chart below shows the distribution of the 385 CFOs’ golf playing rounds from 2008 to 2012. The average rounds that CFOs play per year are 20. Assuming an average round takes 5 hours and the average working hours/week is 40, this is roughly equivalent to 2.5 weeks of work. The maximum rounds that a CFO played in this sample is 148 rounds (4.6 months of work, wow!)

CFO Golfing

Key findings from the paper:

  1. The paper finds positive correlations between CFOs’ golfing frequency and accrual errors, discretionary accruals, and unexplained audit fees.
  2. Higher CFO leisure consumption is associated with a decreased quality and quantity of information provided during the earnings conference call.
  3. Higher CFO leisure consumption is associated with higher analyst forecast dispersion and lower earnings responses.

Watch out for firms where the CFO and the CEO are always golfing!

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About the Author:

Wes Gray
After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.


  1. umair usman December 18, 2015 at 6:15 am

    I have not been through the methodology of the paper but it is surprising how such data (much qualitative) can now be collected and processed. I am fascinated not by the paper but by the research design. thanks for sharing wesley

  2. anonymous322 December 20, 2015 at 9:22 pm

    I feel like I’m being pranked somehow.

  3. sixchickensleft December 21, 2015 at 1:15 pm

    Does that mean we should short US Treasuries?

Comments are closed.