Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability

Efstathios Magerakis () and Ahsan Habib

International Review of Finance, 2022, vol. 22, issue 3, 402-432

Abstract: This article empirically tests the association between environmental uncertainty and corporate cash holdings and whether CEO ability moderates this association. Based on the precautionary motive for holding cash, we predict that firms will hold more cash when operating in an environment of high uncertainty. To test this prediction, we utilize a panel of non‐financial U.S. firms throughout 1980–2016. Using the coefficient of variation in sales as a proxy for environmental uncertainty, we find that environmental uncertainty increases firm cash holding. We then explore the moderating role of CEO ability and find that more‐able CEOs weaken the positive association between environmental uncertainty and cash holding. Further, the results demonstrate that small‐sized, financially sound, and low leveraged firms are likely to hoard more cash during periods of heightened uncertainty. Our study provides new insights for investors, shareholders, and policymakers into companies' decision‐making concerning liquid assets.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/irfi.12355

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:irvfin:v:22:y:2022:i:3:p:402-432

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1369-412X

Access Statistics for this article

International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

More articles in International Review of Finance from International Review of Finance Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().