Is Marriage a Turning Point? Evidence from Cash Holdings Behaviour

Abstract

Given that marriage transforms people, with wide‐ranging and long‐lasting impacts, we examine the role of CEOs' marital status on firms' cash holdings behaviour. Using a large sample of US‐listed firms, we find that single CEOs stockpile more cash than their married counterparts do. Our finding is robust to controlling for various CEO characteristics, CFO influence, tackling endogeneity concerns and using alternative measures of cash. Moreover, we show that exogenous CEO turnover resulting in appointments of single (married) CEOs increases (decreases) cash holdings. Additional results show that single‐CEO firms practise a more conservative payout policy and save more cash from operating and financing cash flows. Consistent with agency theory, single CEOs extract more compensation from the accumulated cash, leading to a lower value of cash holdings. External corporate governance mechanisms mitigate the relationship between single CEOs and cash holdings. Our results show that single‐CEO firms are more prone to agency problems.

Co-opted Boards and Corporate Cash Holdings

“…First, a CEO's sudden death satisfies the relevance condition. The death of a CEO can have a significant impact on board composition (Al Mamun et al, 2023;Zaman et al, 2021) and trigger a succession process, leading to changes in executive leadership (Worrell and Davidson III, 1987). The incumbent board members often engage in co-opting a new CEO to fill the vacancy; the company should have a much less co-opted board under the new CEO.…”

“…We use cash flow volatility because the literature suggests that idiosyncratic risk in cash flow volatility is difficult to hedge (Campbell et al, 2001, Irvine andPontiff, 2009), and therefore firms with higher cash flow volatility hold more cash for precautionary purposes (Opler et al, 1999;Han and Qiu, 2007). Similarly, based on the literature (Al Mamun et al, 2023;Sun and Wang, 2015;Zhang et al, 2020) we also define higher debt ratio and lower interest coverage ratio as financial constraints. All of these financial constraint measures are widely used in the finance and accounting literature (Al Mamun et al, 2023;Bao et al, 2012;Elnahas et al, 2023;Hennessy and Whited, 2007;Linck et al, 2013); their detailed definitions can be found in the Appendix.…”

“…Similarly, based on the literature (Al Mamun et al, 2023;Sun and Wang, 2015;Zhang et al, 2020) we also define higher debt ratio and lower interest coverage ratio as financial constraints. All of these financial constraint measures are widely used in the finance and accounting literature (Al Mamun et al, 2023;Bao et al, 2012;Elnahas et al, 2023;Hennessy and Whited, 2007;Linck et al, 2013); their detailed definitions can be found in the Appendix.…”

“…As governance mechanisms become less effective, managers are more likely to opportunistically hoard cash. The literature generally finds that independent boards, consisting of majority of independent directors who are considered more effective monitors by conventional wisdom, hold less cash (Al Mamun et al, 2023;. External governance may also work; Carl Icahn, a prominent activist investor, believes Apple's cash position has grown unjustifiably large and successfully pushes Apple to distribute cash back to shareholders 1 ; the same person does not believe co-opted directors and claim they are "cronies appointed by the very CEOs they're supposed to be watching" (Business Week Online, 11/18/2005).…”