CEO overconfidence and corporate cash holdings

Yenn Ru Chen ¹

Keng-Yu Ho ²

Chia Wei Yeh ³

Hide authors affiliations Show authors affiliations: 3 affiliations

Department of Finance, National Chengchi University, Taiwan |

Department of Finance, National Taiwan University, Taiwan |

Department of Finance, National Taiwan University, Taiwan, |

Publication type: Journal Article

Publication date: 2020-06-01

Elsevier

Journal of Corporate Finance

scimago Q1

wos Q1

SJR: 3.246

CiteScore: 14.2

Impact factor: 5.9

ISSN: 09291199, 18726313

DOI: 10.1016/j.jcorpfin.2020.101577

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Strategy and Management

Economics and Econometrics

Finance

Business and International Management

Abstract

This study proposes chief executive officer (CEO) overconfidence to be an alternative explanation to corporate cash holdings. We find positive effects of CEO overconfidence on the level of cash holdings and the value of cash, which are mainly due to the investment environments faced by firms. The positive effects of CEO overconfidence on cash holdings level and cash value are barely affected by the traditional motives of cash holdings based on trade-off and agency theories. The analysis of cash sources further explains why firms with overconfident CEOs can aggressively pursue risky investments and maintain large cash holdings at the same time. Although the prior literature indicates that overconfident CEOs tend to avoid equity issues for their capital investments, the contribution to cash savings from equity is higher than that from debt. Additional robustness tests also support our empirical findings.

Found

4 citations

Magerakis Efstathios

PhD in Economics

14 publications, 112 citations, 11 reviews

h-index: 7

Hellenic Open University

University of Patras

Hellenic Mediterranean University

Research interests

Accounting/Finance/Economics

Corporate finance

Financial Economics

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