CEO Overconfidence and the Speed of Adjustment of Cash Holdings

65 Pages Posted: 3 Mar 2020

See all articles by Izidin El Kalak

Izidin El Kalak

Cardiff Business School

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Yilmaz Guney

Coventry University

Date Written: March 2, 2020


We examine the link between CEO overconfidence and speed of adjustment (SOA) of cash holdings for listed US firms. We find a negative effect of overconfident CEOs on the SOA. Further, CEO overconfidence increases the asymmetry in the SOA between firms with excess cash and those with a cash deficit: The SOA is faster (slower) when there is excess cash (deficit). Importantly, we find that the SOA is value-relevant above and beyond cash holding levels. We address endogeneity concerns through difference-in-differences and propensity score matching specifications. Our results are robust to alternative measures of overconfidence, estimation methods, and corporate governance quality.

Keywords: cash holdings, speed of adjustment, CEO overconfidence, corporate governance, financial constraints, leverage

JEL Classification: G32, G34

Suggested Citation

El Kalak, Izidin and Goergen, Marc and Guney, Yilmaz, CEO Overconfidence and the Speed of Adjustment of Cash Holdings (March 2, 2020). European Corporate Governance Institute – Finance Working Paper No. 663/2020, Available at SSRN: or

Izidin El Kalak

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Yilmaz Guney

Coventry University ( email )

Coventry, CV1 5FB
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics