اطمینان بیش از حد مدیریتی و ارزش دارایی های نقدی شرکت ها
Abstract
1- Introduction
2- Data, sample selection and variable definitions
3- CEO overconfidence and the value of cash
4- Additional results
5- Conclusion
References
Abstract
Cash holding is on average more valuable when firms are managed by overconfident CEOs. Economically, having an overconfident CEO on board is associated with an increase of $0.28 in the value of $1.00 cash holding. The positive effect of CEO overconfidence on the value of cash concentrates among firms that are more likely to suffer from the underinvestment problem (i.e., financially constrained firms which exhibit high growth opportunities). In addition, CEO overconfidence affects negatively the value of cash in firms that are financially unconstrained, a finding which is consistent with the overinvestment hypothesis. The results are robust to various tests and alternative explanations.
Introduction
Starting from the pioneering works of Faulkender and Wang (2006) and Pinkowitz et al. (2006), numerous studies have analyzed the value of cash holdings (i.e., the value the market assigns to an additional dollar of cash holding).1 The traditional views are that the value of cash depends: (i) on the information asymmetry between managers and the capital markets (Myers and Majluf (1984)); and (ii) on agency problems that arise due to misalignment of managerial and shareholders' interests (Jensen and Meckling (1976)).2 These studies assume that CEOs are rational. However, a growing body in the corporate finance literature finds that CEO characteristics and behavioral biases affect corporate policies and decisions (see, for instance, Bertrand and Schoar (2003), Malmendier and Tate (2005), (2008), Hirshleifer et al. (2012) and Huang and Kisgen (2013)). Motivated by this literature, this study investigates how CEO overconfidence, one of the most prominent behavioral biases, affects the value of cash. To develop our empirical predictions, we build our theoretical reasoning based on the model derived in Malmendier and Tate (2005). The model assumes an efficient capital market where there are two types of CEOs in the economy: rational CEOs and overconfident CEOs. Both CEO types maximize shareholder value. The only friction in the model comes from the overconfident CEO's perception about the firm's future cash flows; that is, overconfident CEOs overestimate the firm's future cash flows. This implies that: (i) overconfident CEOs perceive their firm as being undervalued by the market (Malmendier and Tate (2005)); and (ii) overconfident CEOs misperceive the cost of capital required by rational creditors and equity investors for providing external financing to the firm (Malmendier et al. (2011)).