Corporate cash holdings and CEO compensation incentives

• 成果类型: Article
• 署名作者: Liu, Yixin; Mauer, David C.
• 署名单位: University of Texas System; University of Texas Dallas; University System Of New Hampshire; University of New Hampshire
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.05.008
• 发表日期: 2011
• 页码: 183-198
• 关键词: CASH HOLDINGS; Value of cash; managerial incentives

摘要

We examine the effect of chief executive officer (CEO) compensation incentives on corporate cash holdings and the value of cash to better understand how compensation incentives designed to enhance the alignment of manager and shareholder interests could influence stockholder-bondholder conflicts. We find a positive relation between CEO risk-taking (vega) incentives and cash holdings, and we find a negative relation between vega and the value of cash to shareholders. The negative effect of vega on the value of cash is robust after controlling for corporate governance, is stronger in firms with high leverage, is reversed for unlevered firms, and is not present in financially constrained firms. We also find that the likelihood of liquidity covenants in new bank loans is increasing in CEO vega incentives. Our evidence primarily supports the costly contracting hypothesis, which asserts that bondholders anticipate greater risk-taking in high vega firms and, therefore, require greater liquidity. (C) 2011 Elsevier B.V. All rights reserved.