Managerial Overconfidence and Corporate Cash Holdings: Evidence from Primary and Secondary Data

Nhung Thi  Dao; Yilmaz Guney; Robert Hudson

doi:10.1016/j.ribaf.2023.101943

Managerial Overconfidence and Corporate Cash Holdings: Evidence from Primary and Secondary Data

Nhung Thi Dao, Yilmaz Guney, Robert Hudson

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13 Citations (Scopus)

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Abstract

The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.

Original language	English
Article number	101943
Number of pages	24
Journal	Research in International Business and Finance
Volume	65
Early online date	31 Mar 2023
DOIs	https://doi.org/10.1016/j.ribaf.2023.101943
Publication status	Published - 1 Apr 2023

Bibliographical note

© 2023, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/

Copyright © and Moral Rights are retained by the author(s) and/ or other copyright owners. A copy can be downloaded for personal non-commercial research or study, without prior permission or charge. This item cannot be reproduced or quoted extensively from without first obtaining permission in writing from the copyright holder(s). The content must not be changed in any way or sold commercially in any format or medium without the formal permission of the copyright holders.

This document is the author’s post-print version, incorporating any revisions agreed during the peer-review process. Some differences between the published version and this version may remain and you are advised to consult the published version if you wish to cite from it.

Keywords

Managerial overconfidence
Optimism
Cash holdings
Overinvestment
Vietnam
Voice pitch

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10.1016/j.ribaf.2023.101943

Guney2023AAMAccepted author manuscript, 0.99 MBLicence: CC BY-NC-ND

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title = "Managerial Overconfidence and Corporate Cash Holdings: Evidence from Primary and Secondary Data",

abstract = "The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.",

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N2 - The corporate finance literature argues that overconfident managers tend to hold less cash, and this leads to a significant deviation from optimal cash levels. We analyse the impact of executive overconfidence on the corporate cash holdings of listed Vietnamese firms. To quantify managerial overconfidence, a novel core measure used in our analyses is voice pitch, which is obtained from interviews with top-line managers. Other measures of managerial overconfidence are also used to support the results and confirm the validity of the voice pitch measure. Our empirical evidence, with economically significant results, reveals that higher levels of overconfidence amongst managers are associated with lower cash holdings. Surprisingly, the findings show that overconfident managers tend to be associated with a low level of deviation from optimal cash holding levels. In addition, our findings also provide evidence that managerial overconfidence can increase cash levels and deviations from target cash holdings for overinvesting firms.

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Managerial Overconfidence and Corporate Cash Holdings: Evidence from Primary and Secondary Data

Abstract

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Keywords

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