Do CEO Beliefs Affect Corporate Cash Holdings?

62 Pages Posted: 20 Feb 2015 Last revised: 16 Nov 2018

See all articles by Sanjay Deshmukh

Sanjay Deshmukh

DePaul University - Department of Finance

Anand M. Goel

Stevens Institute of Technology

Keith M. Howe

DePaul University - Department of Finance

Date Written: November 9, 2018

Abstract

We develop a dynamic model of corporate cash holdings that incorporates CEO beliefs. An optimistic CEO views external financing as excessively costly but expects this cost to moderate over time. The optimistic CEO thus delays external financing while funding current investments with existing cash and maintaining a lower cash balance than rational CEOs. We find that, relative to rational CEOs, optimistic CEOs hold 24% less cash, exhibit a lower change in cash holdings over time, hold lower cash to fund the firm's growth opportunities, and save less cash out of incremental cash flow.

Keywords: CEO optimism, cash holdings

Suggested Citation

Deshmukh, Sanjay and Goel, Anand Mohan and Howe, Keith M., Do CEO Beliefs Affect Corporate Cash Holdings? (November 9, 2018). Available at SSRN: https://ssrn.com/abstract=2566808 or http://dx.doi.org/10.2139/ssrn.2566808

Sanjay Deshmukh (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-8472 (Phone)
312-362-6566 (Fax)

Anand Mohan Goel

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States

HOME PAGE: http://www.anandgoel.org

Keith M. Howe

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5126 (Phone)

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