TY - JOUR
T1 - Precautionary motive or private benefit motive for holding cash
T2 - Evidence from CEO ownership
AU - Sun, Wenyi
AU - Yin, Chao
AU - Zeng, Yeqin
N1 - Funding Information:
We thank seminar participants at Durham University Business School and University of Reading for their insightful and constructive comments. The financial support from Durham University Business School , University of Edinburgh , and Surrey Business School is gratefully acknowledged.
Funding Information:
We thank seminar participants at Durham University Business School and University of Reading for their insightful and constructive comments. The financial support from Durham University Business School, University of Edinburgh, and Surrey Business School is gratefully acknowledged.
Publisher Copyright:
© 2023 The Author(s)
PY - 2023/11
Y1 - 2023/11
N2 - This study examines how CEO ownership affects the motivation of firms to hold cash. We document a monotonic and positive relationship between CEO ownership and cash holdings. The effect is more pronounced for firms with higher firm-specific risk and larger external financing costs, suggesting that CEO ownership encourages firms to hold more cash as precautionary savings. However, we find no evidence that CEO ownership leads to cash hoarding in firms with weak orporate governance. Moreover, we show that firms with high CEO ownership and excess cash holdings have more capital expenditures and R&D expenses but do not have higher dividend payments and share repurchases. Nonetheless, shareholders’ perceived value of cash increases with CEO ownership, indicating that shareholders place a positive value on high levels of cash holdings associated with CEO ownership in the context of growing investment prospects. Overall, our findings support the notion that firm ownership aligns the interests of CEOs and shareholders, rather than encouraging managers to extract private benefits through hoarding cash.
AB - This study examines how CEO ownership affects the motivation of firms to hold cash. We document a monotonic and positive relationship between CEO ownership and cash holdings. The effect is more pronounced for firms with higher firm-specific risk and larger external financing costs, suggesting that CEO ownership encourages firms to hold more cash as precautionary savings. However, we find no evidence that CEO ownership leads to cash hoarding in firms with weak orporate governance. Moreover, we show that firms with high CEO ownership and excess cash holdings have more capital expenditures and R&D expenses but do not have higher dividend payments and share repurchases. Nonetheless, shareholders’ perceived value of cash increases with CEO ownership, indicating that shareholders place a positive value on high levels of cash holdings associated with CEO ownership in the context of growing investment prospects. Overall, our findings support the notion that firm ownership aligns the interests of CEOs and shareholders, rather than encouraging managers to extract private benefits through hoarding cash.
KW - CEO ownership
KW - cash holdings
KW - precautionary motive
KW - private benefit motive
U2 - 10.1016/j.irfa.2023.102820
DO - 10.1016/j.irfa.2023.102820
M3 - Article
SN - 1057-5219
VL - 90
SP - 1
EP - 20
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 102820
ER -