Transition to the Top : The Case of CFO to CEO

The Chief Financial Officer (CFO) is charged with managing activities central to the firm’s solvency, such as capital structure decisions and working capital management. However, CFOs are not often promoted to the top position of Chief Executive Officer (CEO). We provide evidence that the market reacts negatively when a former CFO is announced as the new CEO; but firms with this type of CEO are more profitable and experience greater financial flexibility. Firms led by former CFOs tend to use more debt, debt with longer maturity, debentures, and derivative liabilities. Furthermore, following their appointment, the firm’s risk of default increases