Precautionary motive or private benefit motive for holding cash: Evidence from CEO ownership

Yin, Chao; Sun, Wenyi; Zeng, Yeqin

Abstract

This study examines how CEO ownership affects the motivation of firms to hold cash. We document a monotonic and positive relationship between CEO ownership and cash holdings. The effect is more pronounced for firms with higher firm-specific risk and larger external financing costs, suggesting that CEO ownership encourages firms to hold more cash as precautionary savings. However, we find no evidence that CEO ownership leads to cash hoarding in firms with weak corporate governance. Moreover, we show that firms with high CEO ownership and excess cash holdings have more capital expenditures and R&D expenses but do not have higher dividend payments and share repurchases. Nonetheless, shareholders’ perceived value of cash increases with CEO ownership, indicating that shareholders place a positive value on high levels of cash holdings associated with CEO ownership in the context of growing investment prospects. Overall, our findings support the notion that firm ownership aligns the interests of CEOs and shareholders, rather than encouraging managers to extract private benefits through hoarding cash.

Citation

Yin, C., Sun, W., & Zeng, Y. (2023). Precautionary motive or private benefit motive for holding cash: Evidence from CEO ownership. International Review of Financial Analysis, 90(November 2023), Article 102820. https://doi.org/10.1016/j.irfa.2023.102820

• Journal Article Type: Article
• Acceptance Date: Jul 29, 2023
• Online Publication Date: Aug 2, 2023
• Publication Date: 2023-11
• Deposit Date: Aug 17, 2023
• Publicly Available Date: Aug 17, 2023
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 90
• Issue: November 2023
• Article Number: 102820
• DOI: https://doi.org/10.1016/j.irfa.2023.102820
• Keywords: Pharmacology (medical)
• Public URL: https://durham-repository.worktribe.com/output/1720092