Firm Cash Holdings and CEO Inside Debt
53 Pages Posted: 27 Sep 2012 Last revised: 8 Nov 2013
Date Written: November 8, 2013
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: Suggested Citation