Managerial risk-taking incentives and cash holding in U.S. firms: Evidence from FAS 123R

Jean Canil and Sigitas Karpavičius

International Review of Economics & Finance, 2022, vol. 78, issue C, 605-628

Abstract: Employing FAS 123R, which mandated option expensing, as a quasi-natural experiment, we investigate the causal effects of CEO risk incentives (vega) on cash policies of U.S. firms. Employing a difference-in-differences framework with propensity-score matching, we find no association between changes in CEO portfolio vega and corporate cash holdings, including the marginal value of cash. Our finding applies to both firms most and least affected by the regulatory change. Thus, our evidence challenges the view that stock options are a first-order determinant of corporate cash policy, implying that any previously documented relation may reflect endogeneity rather than a causal influence.

Keywords: Cash holdings; Stock options; CEO portfolio Vega; FAS 123R; Expensing (search for similar items in EconPapers)
JEL-codes: G32 G38 M52 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:78:y:2022:i:c:p:605-628

DOI: 10.1016/j.iref.2022.01.005

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