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Looking in the Rear View Mirror: The Effect of Managers’ Professional Experience on Corporate Cash HoldingsAmy K. DittmarUniversity of Michigan at Ann Arbor - Stephen M. Ross School of Business Ran DuchinUniversity of Washington - Michael G. Foster School of Business March 5, 2013 Abstract: This paper examines how CEOs’ prior work experiences affect firms’ financial policies. Using employment data on more than 8,500 CEOs, we study the effect of being previously employed at a firm that faced financial difficulties on the decision to hold more cash. Our identification strategy exploits exogenous CEO turnovers and past employment in other firms and in roles other than the CEO. We find that firms run by CEOs who experienced financial difficulties are more conservative and hold substantially more cash. The results are stronger in poorly governed firms and are associated with a lower marginal value of cash. We find similar, yet weaker effects for CFOs.
Number of Pages in PDF File: 51 Keywords: cash holdings, precautionary savings, behavioral finance, CEO beliefs, agency JEL Classification: G30, G31, G32 working papers seriesDate posted: September 7, 2012 ; Last revised: March 6, 2013Suggested CitationContact Information
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