Managerial ability, financial constraints, and the value of cash holding

Tsai, Jung‐Fa; Thuy, Ngoc; Bui, Dien Giau

doi:10.1080/13504851.2020.1870917

Cited by 16 publications

(11 citation statements)

References 29 publications

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“…Therefore, this work supplements recent evidence by confirming that management's attributes can help explain heterogeneity in cash-related decisions (e.g. Tsai et al , 2022). Hence, finance research also benefits from the proposed model's plausible guidelines.…”

Section: Discussionsupporting

confidence: 83%

“…Related to corporate financing choices, according to Khoo and Cheung (2021), firms should receive higher trade credit from suppliers on the basis of the manager's superior ability. Preceding evidence reveals that managerial ability and market value of cash value have a positive relationship (Gan and Park, 2017; Tsai et al , 2022). However, this does not exclude the possibility that lower-ability managers would also hold cash to mimic high-ability managers' strategy or mask the firm's weak performance or underinvestment.…”

Section: Related Literature and Empirical Predictionmentioning

confidence: 99%

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The importance of managerial discretion on managerial ability–firm cash holding nexus

Magerakis

2022

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PurposeThis paper examines the role of managerial discretion in the relation between managerial ability on the level of corporate cash.Design/methodology/approachConjoining the upper echelons theory's premises and the theoretical framework of cash holdings, we posit that the managerial ability's effect on cash policy varies with managerial discretion using firm-level data. To test the empirical prediction, we employ a linear regression model with fixed effects with a sample of US listed firms from 1980 to 2016.FindingsThe findings reveal that the positive association between the ability of chief executive officers and corporate cash savings is weakened by firm-level managerial discretion. The results are robust to various additional analyses, namely lagged independent variables regression, reduced form regression and granger causality test. Overall, the findings are generally consistent with the cash holding motives yielding transaction and precautionary demand for money. However, our findings also shed light on whether managerial discretion moderates or exacerbates agency problems related to top executives' cash holding policies.Originality/valueThis work's distinct characteristic is the investigation of the joint effect of managerial talent and discretion on a firm's cash holding, which remains unexplored in the literature.

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Section: Discussionsupporting

confidence: 83%

Section: Related Literature and Empirical Predictionmentioning

confidence: 99%

The importance of managerial discretion on managerial ability–firm cash holding nexus

Magerakis

2022

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“…Hence, we anticipate that more‐able managers should alleviate agency problems arising from environmental uncertainty and maximize the company's net worth by distributing dividends, or making efficient investments, rather than stashing cash, which could lead to a lower marginal value of cash (Cho et al, 2018; Gan & Park, 2017). Tsai et al (2021) suggest that capable CEOs use cash more efficiently and generate higher economic benefits for the firm by reducing financial constraints. Chou and Feng (2019) suggest that inefficient spending of cash resources is related to poor corporate governance, manifested by marked differences in CEO ability.…”

Section: Related Literature and Hypothesis Developmentmentioning

confidence: 99%

Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability

Magerakis

Habib

2021

Int Rev Finance

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This article empirically tests the association between environmental uncertainty and corporate cash holdings and whether CEO ability moderates this association. Based on the precautionary motive for holding cash, we predict that firms will hold more cash when operating in an environment of high uncertainty. To test this prediction, we utilize a panel of non-financial U.S. firms throughout 1980-2016.Using the coefficient of variation in sales as a proxy for environmental uncertainty, we find that environmental uncertainty increases firm cash holding. We then explore the moderating role of CEO ability and find that more-able CEOs weaken the positive association between environmental uncertainty and cash holding. Further, the results demonstrate that small-sized, financially sound, and low leveraged firms are likely to hoard more cash during periods of heightened uncertainty. Our study provides new insights for investors, shareholders, and policymakers into companies' decision-making concerning liquid assets.

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“…Moreover, based on this mechanism, overvalued portfolio firms outperform undervalued portfolio firms which are symbolized as (OMU) to see the relationship between Tobin-q factor and excess average portfolio returns in PSX. Nevertheless, practitioners and portfolio managers consistently use Tobin-Q technique to determine the value of an asset while investing in valuable long-terms assets (see Wang & Xiong, 2021;Qin, Luo, & Wang, 2021;He, Shi, Chang, & Wu, 2021;Tsai, Mai & Bui, 2021;Balfoussia & Gibson, 2019). It estimates whether firm is overvalued or undervalued in terms of operational efficiency.…”

Section: Literature Reviewmentioning

confidence: 99%

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

Azam

2022

JSSMS

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Despite the strong growing popularity of Asset Pricing Models, it is difficult to estimate which factor contributes significantly in explaining average excess portfolio returns particularly in emerging equity market. Using an extensive sample over Jan-1994-Dec-2020 period, this paper aims to extend the literature by augmenting Tobin-Q adjusted risk premium with various unconditional standard asset pricing models which seeks to postulate the nexus between expected portfolios stock returns and risk-factors using monthly data of 521 enlisted financial and non-financial firms from Pakistan Stock Exchange. The multiple time-series OLS regression analysis models are employed to analyze Tobin-q risk-factor augmented with various factors models. Fama and French (2015) five-factor model excessively explains average equity returns however, our results reveal that size, value, profitability and particularly Tobin-q factor are significant while market and investment factor are redundant in Pakistan Stock Exchange. The momentum factor shows weak results in describing average equity returns in the market. Based on Gibbons, Ross and Shanken (1989) test, our findings support Tobin-Q augmented Fama and French (2015) five-factor model as appropriate for pricing stocks returns in emerging market of Pakistan. The investors, portfolio managers and policy-makers should assume the Tobin-q factor while constructing diversified portfolios for investments in Pakistan Stock Exchange

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Managerial ability, financial constraints, and the value of cash holding

Cited by 16 publications

References 29 publications

The importance of managerial discretion on managerial ability–firm cash holding nexus

The importance of managerial discretion on managerial ability–firm cash holding nexus

Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

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