CEO overconfidence and corporate cash holdings

Chen, Yenn-Ru; Ho, Keng-Yu; Yeh, Chia‐Wei

doi:10.1016/j.jcorpfin.2020.101577

Cited by 91 publications

(91 citation statements)

References 36 publications

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“…One also avers that the negative relationship between liquid assets and cash holdings is that the two are perfect substitutes. The relationship between cash holdings and leverage is also significantly negative, consistent with studies that find that firms that have access to debt will reduce their cash holdings and vice versa (Chen et al, 2020;Phan et al, 2019).…”

Section: Discussion Of Resultssupporting

confidence: 84%

Corporate life cycle and cash holding decisions: A South African study

Chireka

2020

Investment Management and Financial Innovations

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The resource-based view theory suggests that as firms’ resource bases differ along the corporate life cycle, even corporate policies such as cash holdings vary along the life cycle. This study seeks to understand the effect of firm’s life cycle on corporate cash holding behavior. Previous literature has sought to investigate the firm and institutional determinants of corporate cash holdings. Using the resource-based view theory, this study investigates whether corporate life cycle can be another determinant of corporate cash holdings. A panel data analysis of a sample of 112 Johannesburg Stock Exchange (JSE) listed firms from 2011 to 2018 is utilized to determine if firm’s life cycle does influence cash holding behavior. Dickinson’s cash flow analysis is used to proxy life cycle stages and control other known determinants of corporate cash holdings such as firm size, leverage, profitability, dividend payments, and growth opportunities. Contrary to other studies, this study finds no significant relationship between life cycle stages and corporate cash holdings, suggesting that corporate cash holdings for South African firms are driven by other factors other than life cycle resource allocations. However, it is found that prior year cash balances, firm size, and profitability have significant positive relationships with cash holdings. It is also found that liquid asset substitutes, leverage, and investment opportunities exert a significant and negative influence on corporate cash holdings.

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Section: Discussion Of Resultssupporting

confidence: 84%

Corporate life cycle and cash holding decisions: A South African study

Chireka

2020

Investment Management and Financial Innovations

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“…Meanwhile, Huang-Meier et al (2016) document that optimistic managers are reluctant to utilize external funds, spending more cash on current capital expenditures and reserving cash for future growth opportunities. Similar to Huang-Meier et al (2016), Chen et al (2020) find evidence showing the positive effect of managerial overconfidence/high optimism on cash holding, supporting the argument that overconfident/optimistic CEOs face higher capital demands to meet firms' investments but do not want to rely on external financing; therefore, they tend to hoard more cash than a rational CEO.…”

Section: Introductionsupporting

confidence: 64%

“…This new measure may be preferable to existing measures because it is more feasible and less costly compared to experiments or surveys that must be carefully designed (Ben-David et al, 2013;Pikulina et al, 2017) and less likely to include corporate managers as respondents in a multi-year survey. Our measure is more direct relative to the measures inferred from managers' option exercise behavior, firm investment level (Malmendier and Tate, 2008;Campbell et al, 2011;Huang-Meier et al, 2016;Deshmukh et al, 2017;Chen et al, 2020), or media's description Tate, 2005, 2008;Aktas et al, 2019). More importantly, this new measure can be easily applied at all levels of financial market development because annual reports are formal and compulsory documents that all listed companies are required to disclose, whereas the data required to calculate other measures, such as option holding, are not always available, especially in immature markets.…”

Section: Introductionmentioning

confidence: 99%

Managerial optimism and corporate cash holdings

Trần

Hoang

2020

IJMF

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PurposeThis paper examines the effects of managerial optimism on corporate cash holdings.Design/methodology/approachThe authors construct a novel measure of managerial optimism based on the linguistic tone of annual reports by applying a Naïve Bayesian Machine Learning algorithm to non-numeric parts of Vietnamese listed firms' reports from 2010 to 2016. The paper employs firm and year fixed effects model and also uses the generalized method of moments estimation as robustness checks.FindingsThe authors find that the cash holding of firms managed by optimistic managers is higher than the cash holdings of firms managed by non-optimistic managers. Managerial optimism also influences corporate cash holdings through internal cash flows and the current year’s capital expenditures. Although the authors find no evidence that optimistic managers hold more cash to finance future growth opportunities in general, optimistic managers hold more cash for near future investment opportunities than non-optimistic managers do.Research limitations/implicationsThe novel measure proposed in this study is expected to provide great potential for future finance studies investigating the relation between managerial traits and corporate policies since it is applicable for any levels of financial market development. In addition, the findings highlight the important role, both direct and indirect, of managerial optimism on cash holdings. Related future research should take this psychological trait into account to gain a better understanding of corporate cash holding.Originality/valueThis paper helps to extend the literature on managerial optimism measurement by introducing a new measure of managerial optimism based on the linguistic tone of annual reports. Furthermore, this is among the first studies directly linking annual report linguistic tone to cash holding. The paper also provides new evidence regarding how managerial optimism affects the relationship between the firm's growth opportunities and cash holding, given that mispricing corrections are naturally uncertain.

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“…Several studies have tried to analyze the determinants of CSR, focusing on the financial constraints, stakeholders or agency costs. Many studies take into account the behavioral aspects of managers (Kim et al, 2018;Abatecola et al, 2018;Chen et al, 2020). The upper echelon theory frameworks are adopted to understand the extent to which CEO characteristics influence CSR.…”

Section: Introductionmentioning

confidence: 99%

Do CEO overconfidence and narcissism affect corporate social responsibility in the UK listed companies? The moderating role of corporate governance

Bouzouitina

Mouakhar²,

Jarboui

2021

SBR

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Purpose This paper aims to examine the effect of two CEO characteristics, namely, narcissism and overconfidence on corporate social responsibility (CSR) and the moderating effect of corporate governance (CG) mechanisms in the UK. Design/methodology/approach Using a sample of 2,360 UK firms listed on the FTSE 400 index for the years 2010–2017, the feasible generalized least squares method was applied to test the hypotheses developed. Findings The finding argues that CEO narcissism and overconfidence positively affect CSR. In addition, this paper found that CG effectiveness moderates the CEO’s CSR behavior. Research limitations/implications This research is subjected to two limitations. First, this study used different measures to proxy for CEO narcissism and overconfidence. However, other measures are not included owing to the difficulty to collect data regarding these measures. Second, this study includes only CSR performance instead of all other dimensions and categories of CSR. These limitations do not change the conclusions of this research, and they may provide guidance for further investigations. Practical implications Given that the CEOs psychological and behavioral features are critical in understanding CSR, shareholders and boards of directors should incorporate the behavioral aspects of narcissistic and overconfident CEOs in the design of CSR strategy. Originality/value This study emphasizes the importance of top executives’ psychological characteristics for CSR, which is a key application and complements the “upper echelons theory” and fills the research gap in the literature. This is one of the few studies that investigate the interaction between CG, CEO profile and CSR.

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CEO overconfidence and corporate cash holdings

Cited by 91 publications

References 36 publications

Corporate life cycle and cash holding decisions: A South African study

Corporate life cycle and cash holding decisions: A South African study

Managerial optimism and corporate cash holdings

Do CEO overconfidence and narcissism affect corporate social responsibility in the UK listed companies? The moderating role of corporate governance

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