Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data

Nhung Thi Tuyet Dao, Yilmaz Guney and Robert Hudson

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.

Keywords: Managerial overconfidence; Optimism; Cash holdings; Overinvestment; Vietnam; Voice pitch; Psychometric tests (search for similar items in EconPapers)
JEL-codes: G30 G32 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000697

DOI: 10.1016/j.ribaf.2023.101943

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