Firm Cash Holdings and CEO Inside Debt

53 Pages Posted: 27 Sep 2012 Last revised: 8 Nov 2013

See all articles by Yixin Liu

Yixin Liu

University of New Hampshire

David C. Mauer

University of North Carolina (UNC) at Charlotte

Yilei Zhang

University of North Carolina (UNC) at Charlotte

Date Written: November 8, 2013

Abstract

We examine the effect of CEO pensions and deferred compensation (inside debt) on firm cash holdings and the value of cash. We document a positive relation between CEO inside debt and firm cash holdings. This positive effect is magnified by firm leverage and mitigated by the presence of financial constraints. We further find that the marginal value of cash to shareholders declines as CEO inside debt increases. Our evidence supports the view that inside debt tilts managerial incentives toward bondholders and helps balance the competing interests of stockholders and bondholders. The evidence also suggests, however, that inside debt can harm shareholder value by encouraging excess cash holdings.

Keywords: cash holdings, inside debt, pension, deferred compensation

JEL Classification: G30, G32, G34

Suggested Citation

Liu, Yixin and Mauer, David C. and Zhang, Yilei, Firm Cash Holdings and CEO Inside Debt (November 8, 2013). Available at SSRN: https://ssrn.com/abstract=2152372 or http://dx.doi.org/10.2139/ssrn.2152372

Yixin Liu

University of New Hampshire ( email )

Durham, NH 03824
United States
603-862-3357 (Phone)

David C. Mauer (Contact Author)

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7707 (Phone)

Yilei Zhang

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

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