Ex Post Bargaining, Corporate Cash Holdings, and Executive Compensation

Yingmei Cheng, Jarrad Harford (), Irena Hutton and Stephan Shipe

Journal of Financial and Quantitative Analysis, 2022, vol. 57, issue 3, 957-987

Abstract: We show that high cash holdings can be used by executives in the ex post bargaining over their compensation. Cash holdings are positively associated with CEO compensation and is driven by non-salary components. In companies with weaker governance, this relation is more pronounced. Using exogenous shocks to the firm’s cash, we show that CEO compensation readily responds to increases in cash holdings, confirming that managers are able to derive personal benefits from excess cash holdings.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:57:y:2022:i:3:p:957-987_5

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