Are CFOs Smarter Than CEOs — or Do They Just Invest That Way?

by Nell Minow for Bnet, April 14th, 2011.

A new study shows that CFOs are smarter than CEOs when it comes to predicting their company’s stock price performance. A forthcoming article in the Journal of Financial and Quantitative Analysis by professors Weimin Wang,Yong-Chul Shin, and Bill B. Francis found that CFO stock purchases are a more reliable predictor of stock price performance than CEO purchases.

They concluded that “CFOs earn statistically and economically higher abnormal returns following their purchases of company shares than CEOs,” with an excess return 5 percent higher, even controlling for risk factors. In addition, “CFO purchases are associated with more positive future earnings surprises than CEO purchases.”

Past studies have looked at CEO stock trades as predictors of future stock price or as incentives for earnings management. But this look at what we can tell from the variance between the personal portfolio decisions of chief executives versus their own top numbers people is illuminating. The authors believe the numbers suggest “that CFOs incorporate better information about future earnings.” (continue reading… )


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