Looking in the Rear View Mirror: The Effect of Managers’ Professional Experience on Corporate Cash Holdings
Amy K. Dittmar
University of Michigan at Ann Arbor - Stephen M. Ross School of Business
University of Washington - Michael G. Foster School of Business
March 5, 2013
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, G32working papers series
Date posted: September 7, 2012 ; Last revised: March 6, 2013
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