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Motives for corporate cash holdings: the CEO optimism effect

Huang-Meier, W and Lambertides, N and Steeley, JM (2015) 'Motives for corporate cash holdings: the CEO optimism effect.' Review of Quantitative Finance and Accounting. ISSN 0924-865X

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Abstract

We examine the chief executive officer (CEO) optimism effect on managerial motives for cash holdings and find that optimistic and non-optimistic managers have significantly dissimilar purposes for holding more cash. This is consistent with both theory and evidence that optimistic managers are reluctant to use external funds. Optimistic managers hoard cash for growth opportunities, use relatively more cash for capital expenditure and acquisitions, and save more cash in adverse conditions. By contrast, they hold fewer inventories and receivables and their precautionary demand for cash holdings is less than that of non-optimistic managers. In addition, we consider debt conservatism in our model and find no evidence that optimistic managers? cash hoarding is related to their preference to use debt conservatively. We also document that optimistic managers hold more cash in bad times than non-optimistic managers do. Our work highlights the crucial role that CEO characteristics play in shaping corporate cash holding policy.

Item Type: Article
Uncontrolled Keywords: Cash holdings, Liquidity, Cash holdings motive, CEO optimism
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Depositing User: Winifred Huang-Meier
Date Deposited: 17 Sep 2015 16:00
Last Modified: 23 Oct 2017 21:15
URI: http://repository.essex.ac.uk/id/eprint/14939

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