CEO Political Ideology and Corporate Cash Holdings

Shirina Lin (), Dewan Rahman and Barry Oliver
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Shirina Lin: The University of Queensland
Dewan Rahman: The University of Queensland
Barry Oliver: The University of Queensland

A chapter in Proceedings of the 13th International Conference on Business, Accounting, Finance and Economics (BAFE 2025), 2025, pp 381-409 from Springer

Abstract: Abstract This study investigates the impact of CEO personal political ideology on the level of corporate cash holdings and the market value of the cash saved. Using individual CEO contribution data to US political parties covering the period 2003 to 2019, we find that CEO political ideology has a significant impact on firm corporate cash policy. Republican-leaning CEOs hold lower levels of cash in comparison to Democratic-leaning CEOs. This effect is more pronounced when the firms led by Republican-leaning CEOs have higher credit ratings. We also find that despite holding lower levels of cash, Republican-leaning CEOs’ conservative investment policies are valuable to shareholders. With every additional dollar of cash held, the value of cash for firms with Republican-leaning CEOs is $0.851 higher relative to Democratic-leaning CEOs. The effect is more pronounced when the firms are classified as efficient. These results suggest that Republican-leaning CEOs consider the level of cash in accordance with the trade-off theory; as the benefits of holding excess cash to mitigate costly external financing are outranked by the cost of piling unnecessary cash, leading to holding less cash. Moreover, their conservative investment policies are valuable to the market.

Keywords: CEO Political Ideology; Corporate Cash Policy; Trade-Off Theory (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-968-1_27

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