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The Impact of Governance Mechanism and Managerial Overconfidence on the Value of Cash Holdings

Author

Listed:
  • Shen-Ho Chang

    (Department of Accounting, Feng Chia University, No. 100, Wenhwa Rd., Seatwen, Taichung, Taiwan 40724, R.O.C.,)

  • Feng-Yi Hsu

    (Feng Chia University, No. 367, Beining Rd., Zhongzheng Dist., Keelung City 202, Taiwan, R.O.C.)

Abstract

This study aims to discuss the overconfident managers and the governance mechanism of the company on the value of cash held by enterprises. According to the empirical findings, the overconfident managers greatly reduces the value of the cash held by the enterprises, while the governance mechanism of the company can effectively weaken the overconfidence of the manager, and thus, significantly increase the value of the cash. An efficient governance mechanism of a company can increase the value of held cash to the level that the cash value is 2.67 times more than the cash held under an inefficient governance mechanism. Therefore, managers with overconfidence should be encouraged to hold more cash in an efficient governance mechanism.

Suggested Citation

  • Shen-Ho Chang & Feng-Yi Hsu, 2017. "The Impact of Governance Mechanism and Managerial Overconfidence on the Value of Cash Holdings," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 517-529.
    • Handle: RePEc:eco:journ1:2017-05-60
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Overconfidence; Cash holdings; Governance mechanism;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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