How Do Chief Financial Officers Influence Corporate Cash Policies?
63 Pages Posted: 15 Mar 2017 Last revised: 28 Feb 2020
Date Written: August 29, 2018
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: Suggested Citation