Firm cash holdings and CEO inside debt

Yixin Liu, David C. Mauer and Yilei Zhang

Journal of Banking & Finance, 2014, vol. 42, issue C, 83-100

Abstract: We examine the effect of CEO pensions and deferred compensation (inside debt) on firm cash holdings and the value of cash. We document a positive relation between CEO inside debt and firm cash holdings. This positive effect is magnified by firm leverage and mitigated by the presence of financial constraints. We further find that the marginal value of cash to shareholders declines as CEO inside debt increases. Our evidence supports the view that inside debt tilts managerial incentives toward bondholders and helps balance the competing interests of stockholders and bondholders. The evidence also suggests, however, that inside debt can harm shareholder value by encouraging excess cash holdings.

Keywords: Cash holdings; Inside debt; Pension; Deferred compensation (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:42:y:2014:i:c:p:83-100

DOI: 10.1016/j.jbankfin.2014.01.031

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