CFO co-option and dividend payments: the moderating role of CFO talent

Purpose - This study aims to investigate the association between the co-option of the chief financial officer (CFO) and dividend payments, assessing whether the talent of the CFO affects this association. Design/methodology/approach - The empirical analyses were based on hand-collected data for 922 firm-year observations from 157 European listed firms, during the period 2013–2019. Empirical models, based on a two-step estimation procedure, involved the use of instrumental variables and the generalised moment method. Findings - The results show that CFO co-option is negatively associated with the level of dividend payments. It was also found that the degree of CFO talent moderates the negative association between CFO co-option and dividend payments. Research limitations/implications - This investigation responds to the call for literature which examines how chief executive officer (CEO) – CFO relationships influence firms’ policies and outcomes. The study offers novel evidence for the individual-level characteristics of CFOs which are likely to reduce the effectiveness of CEO power and increase monitoring on corporate decisions on dividends. Practical implications - The study sheds light on the effect of the interactions between CEOs and CFOs, which are important for investors’ expectations. In this regard, investors may be interested in the CFO profiles which may reduce CEO power over dividend policies. Originality/value - Unlike previous research, which focused on CEOs, the authors are the first to shed light on the role of CFOs as key decision makers in influencing the dividend policies in modern corporations.