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The effect of managerial horizon on cash holdings

Sanjib Guha (Luter School of Business, Christopher Newport University, Newport News, Virginia, USA)
Niazur Rahim (Luter School of Business, Christopher Newport University, Newport News, Virginia, USA)

Managerial Finance

ISSN: 0307-4358

Article publication date: 19 July 2019

Issue publication date: 15 August 2019

560

Abstract

Purpose

US corporations are now sitting on an enormous stockpile of cash. Instead of investing their resources and creating jobs, the firms are holding on to excess cash. Academicians and practitioners alike have tried to fathom the reasons why companies are holding on to so much cash. Numerous studies have talked about the various motives for holding cash. Many researchers have tried to correlate excess cash holding with particular firm characteristics. The purpose of this paper is to study the correlations that exist between excess cash holding and some measurable managerial characteristics.

Design/methodology/approach

Four different measures of managerial horizon (MH) were constructed. The first two constructs (MH1 and MH2) are based on the CEO’s age and how long he has been the CEO of the company. The next two constructs (MH3 and MH4) are based on compensation, proportion of current compensation and proportion of future compensation. This paper tries to examine if MH has any impact on excess cash holding.

Findings

The results clearly show that the CEO age and the proportion of CEO’s compensation (current and future) do determine level of cash holding in the company. Younger CEOs hold more cash compared to older CEOs. Older CEOs hold less cash suggesting that as CEOs grow older they might be motivated by the idea of leaving a long lasting legacy. CEOs who receive more of their compensation in future payments also hold on to more cash, whereas CEOs who receive more of their compensation in current payments hold less cash.

Originality/value

There is no previous literature dealing with MH and cash holding by corporations.

Keywords

Citation

Guha, S. and Rahim, N. (2019), "The effect of managerial horizon on cash holdings", Managerial Finance, Vol. 45 No. 8, pp. 1092-1110. https://doi.org/10.1108/MF-09-2018-0442

Publisher

:

Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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