Abstract
We develop an expanded trade-off model of cash holdings that incorporates CEO beliefs. The optimistic CEO views external financing as excessively costly but expects this cost to decline over time, thus delaying external financing and maintaining a lower cash balance than rational CEOs. We find that, relative to rational CEOs, optimistic CEOs hold 24% less cash, exhibit a lower change in cash holdings over time, hold lower cash to fund the firm's growth opportunities, and save less cash out of current cash flow. We confirm our findings with two different samples of firms and two alternative measures of optimism.
Full Text 
Sign-in/Register to access full text options
Sign-in/Register to access full text options 
Published version (
Free)
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
