Date of Award
Doctor of Philosophy (PhD)
U.S. corporations are now sitting on an enormous stockpile of cash. Academicians and practitioners alike have tried to understand the reasons why companies are holding on to so much cash. Numerous studies have explored the various motives for holding cash. Many researchers have tried to correlate excess cash holding with particular firm characteristics. This dissertation analyzes the correlations that exist between excess cash holding and some measurable managerial characteristics. This dissertation examines if managerial horizon has any impact on excess cash holding. It also examines if managerial horizon and excess cash has any impact on firm value. Four different measures of managerial horizon were constructed. The first two constructs (MH 1 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.
The results clearly show that 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. This makes intuitive sense because a CEO whose higher proportion of compensation is going to be paid in the future is more likely to conserve cash to better facilitate its future payments. This dissertation also shows that as companies are holding on to excess cash, the higher level of excess cash is having a significant impact on the firm value. As expected, the results show that in general firms holding more excess cash see a reduction in firm value.
The second essay in this dissertation examines if managerial horizon has any effect on earnings management. Earnings are one of the most important measures of firm performance and previous studies have shown that managers have a tendency to manipulate earnings to raise investor demand for a stock. We used a very good measurement of Earnings Management (EM) as propounded by Lee and Masulis (2009) to see if it was affected by any of the four measurable constructs of managerial horizon. The results show that there is no effect of managerial horizon on earnings management. The results show that one of the important determinants of earnings management was cash flow of the firms, which lends support to the Agency problem facing the firms. The results also show that EM does not lead to higher dividend payouts in firms.
"Two Essays on Managerial Horizon, Cash Holdings and Earnings Management"
(2015). Doctor of Philosophy (PhD), Dissertation, , Old Dominion University, DOI: 10.25777/myx4-4w31