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Firm cash holdings and CEO inside debt

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  • Liu, Yixin
  • Mauer, David C.
  • Zhang, Yilei

Abstract

We examine the effect of CEO pensions and deferred compensation (inside debt) on firm cash holdings and the value of cash. We document a positive relation between CEO inside debt and firm cash holdings. This positive effect is magnified by firm leverage and mitigated by the presence of financial constraints. We further find that the marginal value of cash to shareholders declines as CEO inside debt increases. Our evidence supports the view that inside debt tilts managerial incentives toward bondholders and helps balance the competing interests of stockholders and bondholders. The evidence also suggests, however, that inside debt can harm shareholder value by encouraging excess cash holdings.

Suggested Citation

  • Liu, Yixin & Mauer, David C. & Zhang, Yilei, 2014. "Firm cash holdings and CEO inside debt," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 83-100.
    • Handle: RePEc:eee:jbfina:v:42:y:2014:i:c:p:83-100
    DOI: 10.1016/j.jbankfin.2014.01.031
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    More about this item

    Keywords

    Cash holdings; Inside debt; Pension; Deferred compensation;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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