CEO Neuroticism and Corporate Cash Holdings: Evidence from CEOs’ tweets on Twitter
49 Pages Posted: 28 Mar 2022
Date Written: October 28, 2021
Abstract
We examine the effects of CEO neuroticism on corporate policies for cash holdings. We hand-collect the tweets by CEOs at S&P 1500 companies to measure their neuroticism. We find that firms with relatively neurotic CEOs hold more cash than other CEOs. Using two crises as shocks to corporate liquidity, we find consistent results that neurotic CEOs hold more cash following these crises. We further decompose neuroticism into its six facets and find similar results. This positive effect is more pronounced when the firm has a higher precautionary motive to hold cash. The cash held by firms with neurotic CEOs leads to higher firm values and lower credit risks. Overall, neurotic CEOs have more conservative corporate policies on holding cash, resulting in a lower cost of financial distress and an improvement in the value of firms, especially when they face greater frictions to external financing or higher volatility in internal cash flows.
Keywords: Cash holdings, CEO personality traits, CEO neuroticism, precautionary motives, value of cash
JEL Classification: G30, G32, G40, G41
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