CEO Overconfidence and the Speed of Adjustment of Cash Holdings

55 Pages Posted: 3 Mar 2020 Last revised: 12 Sep 2022

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: August 31, 2022


We examine the links between CEO overconfidence, the speed of adjustment (SOA) of cash holdings, and firm value for listed US firms. First, we find that the SOA is value-relevant above and beyond the cash holdings level. Second and more importantly, we find a positive effect of CEO overconfidence on the SOA. We address endogeneity concerns through a difference-in-differences approach, propensity score matching, and entropy balancing. Our results are robust to the use of alternative estimation methods. Finally, we find that financial constraints, debt levels, and corporate governance quality affect the relation between CEO overconfidence and the SOA of cash holdings.

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 (August 31, 2022). 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

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