Cash Holdings and CEO Turnover

Vincent J. Intintoli, Kathleen M. Kahle

Research output: Contribution to journalArticle

Abstract

Chief Executive Officer (CEO) characteristics, such as the level of risk aversion, are known to affect corporate financial policies, and therefore are likely to impact corporate liquidity decisions. We examine changes in cash holdings around CEO turnover events, a period in which discrete changes in managerial preferences and abilities are likely to have the most dramatic effect on cash holdings. Our results suggest that cash holdings increase significantly following forced departures. The increase is persistent over the successor's tenure and is robust to controls for the standard firm-level determinants of cash holdings and corporate governance characteristics. We find that higher cash holdings arise mainly through the management of net working capital, as opposed to asset sales or reductions in investment. This suggests that the changes are optimal for shareholders rather than an indication of serious agency problems. This conclusion is supported further by our finding that the marginal value of cash does not decrease following the turnover.

Original languageEnglish (US)
Article number1650022
JournalQuarterly Journal of Finance
Volume6
Issue number4
DOIs
StatePublished - Dec 1 2016

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Keywords

  • agency problems
  • cash holdings
  • CEO turnover
  • corporate governance

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Strategy and Management

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