CEO Overconfidence and the Speed of Adjustment of Cash Holdings

CEO Overconfidence and the Speed of Adjustment of Cash Holdings

Izidin El Kalak, Marc Goergen, Yilmaz Guney

Series number :

Serial Number: 
663/2020

Date posted :

March 05 2020

Last revised :

March 05 2020
SSRN Share

Keywords

  • cash holdings • 
  • speed of adjustment • 
  • CEO overconfidence • 
  • Corporate governance • 
  • Financial Constraints • 
  • leverage

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.
 

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Authors

Real name:
Izidin El Kalak
Real name:
Yilmaz Guney