The effect of managerial horizon on cash holdings

Abstract

Purpose US corporations are now sitting on an enormous stockpile of cash. Instead of investing their resources and creating jobs, the firms are holding on to excess cash. Academicians and practitioners alike have tried to fathom the reasons why companies are holding on to so much cash. Numerous studies have talked about the various motives for holding cash. Many researchers have tried to correlate excess cash holding with particular firm characteristics. The purpose of this paper is to study the correlations that exist between excess cash holding and some measurable managerial characteristics. Design/methodology/approach Four different measures of managerial horizon (MH) were constructed. The first two constructs (MH1 and MH2) are based on the CEO’s age and how long he has been the CEO of the company. The next two constructs (MH3 and MH4) are based on compensation, proportion of current compensation and proportion of future compensation. This paper tries to examine if MH has any impact on excess cash holding. Findings The results clearly show that the CEO age and the proportion of CEO’s compensation (current and future) do determine level of cash holding in the company. Younger CEOs hold more cash compared to older CEOs. Older CEOs hold less cash suggesting that as CEOs grow older they might be motivated by the idea of leaving a long lasting legacy. CEOs who receive more of their compensation in future payments also hold on to more cash, whereas CEOs who receive more of their compensation in current payments hold less cash. Originality/value There is no previous literature dealing with MH and cash holding by corporations.

Do CEO characteristics impact corporate cash holdings? Insights from consumer goods companies listed on the Indonesia Stock Exchange

“…Therefore, H3 is rejected. The six regressions above align with the research conducted by Guha and Rahim (2019), who found that CEO tenure has no effect on cash holdings.…”

“…(Orens & Reheul, 2013) and Mun et al (2017) also reported that older CEOs manage cash with precautionary motives and are less concerned with opportunities to increase cash. In contrast, Guha and Rahim (2019) stated that younger CEOs have more money than older CEOs. Older CEOs hold less cash because as CEOs get older, they may be motivated by the idea of leaving a lasting legacy.…”

“…The second indicator (GEND2) is the percentage of female CEOs on the board of directors. The third indicator (GEND3) is the total number of female CEOs on the board of directors.-CEO AgeBased on previous research(Mun et al, 2017;Guha and Rahim, 2019), CEO age is the difference between the CEO's year of birth and the current fiscal year. -CEO tenureBased on previous research(Mun et al, 2017;Lim and Lee, 2019;Suherman et al, 2021), CEO tenure is the difference between the first year a CEO was appointed and the current fiscal year.…”