Cash Holding in U.S. Firms: Evidence from FAS 123R

49 Pages Posted: 21 Jul 2017

See all articles by Jean Canil

Jean Canil

University of Adelaide - Business School; Financial Research Network (FIRN)

Sigitas Karpavicius

The University of Adelaide

Date Written: July 19, 2017


Using exogenous variation in CEO stock option grants generated by FAS 123R which mandated expensing of employee stock options, we investigate the causal effects of CEO risk incentives (vega) on cash policies of U.S. firms. Employing a difference-in-difference framework, in which we identify firms most affected by the regulatory change, we find no evidence that changes in CEO portfolio vega lead to significant changes in corporate cash holdings and the marginal value of cash. Our evidence challenges the view that option-based compensation is a first-order driver of corporate cash policy and instead implies that previously documented associations perhaps reflect endogeneity rather than a causal influence.

Keywords: Cash holdings; Stock options; CEO vega; FAS 123R; Expensing

JEL Classification: G32; G38; M52

Suggested Citation

Canil, Jean and Karpavicius, Sigitas, Cash Holding in U.S. Firms: Evidence from FAS 123R (July 19, 2017). Available at SSRN: or

Jean Canil (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Sigitas Karpavicius

The University of Adelaide ( email )

Adelaide Business School
Level 12, 10 Pulteney Street
Adelaide, SA 5005
+61 8 8313 8007 (Phone)

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