CEO Overconfidence and the Speed of Adjustment of Cash Holdings

Event details

Speaker 

Professor Yilmaz Guney

Abstract

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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