How Do Chief Financial Officers Influence Corporate Cash Policies?

63 Pages Posted: 15 Mar 2017 Last revised: 2 Sep 2018

See all articles by Chris Florackis

Chris Florackis

University of Liverpool (UK)

Sushil Sainani

University of Liverpool

Date Written: August 29, 2018

Abstract

This paper examines the extent to which Chief Financial Officers (CFOs) affect corporate cash holding policies. We construct an index (CFO index) that enables us to distinguish between "strong'' and "weak'' CFOs based on their ability to influence firm outcomes. We find that firms with strong CFOs hold substantially less cash than firms with weak CFOs, ceteris paribus. Importantly, the CFO effect documented in our study goes beyond the effect caused by the Chief Executive Officer (CEO) on cash holdings. Our findings provide the first direct empirical evidence that firms with strong CFOs are well positioned to hold less cash due to their relatively weak precautionary motive and superior ability to raise external financing during periods of financial stress.

Keywords: Cash Holdings, Chief Financial Offcer, CFO, Corporate Governance, Debt Issuance

JEL Classification: G30, G32

Suggested Citation

Florackis, Chris and Sainani, Sushil, How Do Chief Financial Officers Influence Corporate Cash Policies? (August 29, 2018). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2932832 or http://dx.doi.org/10.2139/ssrn.2932832

Chris Florackis (Contact Author)

University of Liverpool (UK) ( email )

The Management School
University of Liverpool
Liverpool, L 697ZH
United Kingdom

Sushil Sainani

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

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