Do CEO beliefs affect corporate cash holdings?

Sanjay Deshmukh, Anand Goel () and Keith M. Howe

Journal of Corporate Finance, 2021, vol. 67, issue C

Abstract: We develop a model of corporate cash holdings that incorporates CEO beliefs. An optimistic CEO views external financing as excessively costly but expects this cost to moderate over time. The optimistic CEO thus delays external financing while funding current investments with existing cash and maintaining a lower cash balance than rational CEOs. We find that, relative to rational CEOs, optimistic CEOs hold 24% less cash, hold lower cash to fund the firms' growth opportunities, and save less cash out of incremental cash flow.

Keywords: CEO; Overconfidence; Optimism; Cash holdings; Corporate finance; Behavioral finance (search for similar items in EconPapers)
JEL-codes: D82 G31 G32 G35 G40 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000067

DOI: 10.1016/j.jcorpfin.2021.101886

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