Industry Tournament Incentives and the Product Market Benefits of Corporate Liquidity

91 Pages Posted: 4 Dec 2017

See all articles by Jian Huang

Jian Huang

Towson University - College of Business and Economics

Bharat A. Jain

Towson University

Omesh Kini

Georgia State University

Date Written: November 30, 2017

Abstract

We evaluate the link between CEO industry tournament incentives (ITI) and the product market benefits of corporate liquidity. We find that ITI increase the level and marginal value of cash holdings. Furthermore, ITI strengthen the relation between excess cash and market share gains especially for firms that face significant competitive threats. Additionally, for firms with excess cash, higher ITI lead to increased R&D expenses, capital expenditures, and spending on focused acquisitions as well as reduced payouts. Overall, our findings suggest that ITI increase the value of cash by incentivizing CEOs to deploy cash strategically to capture its product market benefits.

Keywords: Industry tournament incentives, Marginal value of cash, Level of cash, Strategic investments, Market share, Product markets

JEL Classification: G31, G32, G34, J31, J33, L25, D21

Suggested Citation

Huang, Jian and Jain, Bharat A. and Kini, Omesh, Industry Tournament Incentives and the Product Market Benefits of Corporate Liquidity (November 30, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3080115

Jian Huang

Towson University - College of Business and Economics ( email )

8000 York Road
Towson, MD 21252
United States
410-704-3547 (Phone)
410-704-3454 (Fax)

Bharat A. Jain

Towson University ( email )

8000 York Road
Towson, MD 21252
United States
410-704-3542 (Phone)

Omesh Kini (Contact Author)

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

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