Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data

Dao, Thi Tuyet Nhung; Guney, Yilmaz; Hudson, Robert

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.

Citation

Dao, T. T. N., Guney, Y., & Hudson, R. (2023). Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data. Research in international business and finance, 65, Article 101943. https://doi.org/10.1016/j.ribaf.2023.101943

• Journal Article Type: Article
• Acceptance Date: Mar 29, 2023
• Online Publication Date: Mar 31, 2023
• Publication Date: Apr 1, 2023
• Deposit Date: Apr 2, 2023
• Publicly Available Date: Oct 1, 2024
• Journal: Research in international business and finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 65
• Article Number: 101943
• DOI: https://doi.org/10.1016/j.ribaf.2023.101943
• Keywords: Managerial overconfidence; Optimism; Cash holdings; Overinvestment; Vietnam; Voice pitch; Psychometric tests
• Public URL: https://hull-repository.worktribe.com/output/4254992