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Managerial risk-taking incentives and cash holding in U.S. firms: Evidence from FAS 123R

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  • Canil, Jean
  • Karpavičius, Sigitas

Abstract

Employing FAS 123R, which mandated option expensing, as a quasi-natural experiment, we investigate the causal effects of CEO risk incentives (vega) on cash policies of U.S. firms. Employing a difference-in-differences framework with propensity-score matching, we find no association between changes in CEO portfolio vega and corporate cash holdings, including the marginal value of cash. Our finding applies to both firms most and least affected by the regulatory change. Thus, our evidence challenges the view that stock options are a first-order determinant of corporate cash policy, implying that any previously documented relation may reflect endogeneity rather than a causal influence.

Suggested Citation

  • Canil, Jean & Karpavičius, Sigitas, 2022. "Managerial risk-taking incentives and cash holding in U.S. firms: Evidence from FAS 123R," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 605-628.
    • Handle: RePEc:eee:reveco:v:78:y:2022:i:c:p:605-628
    DOI: 10.1016/j.iref.2022.01.005
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    1. Abdoh, Hussein, 2023. "Rivals risk-taking incentives and firm corporate policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 90(C), pages 106-123.

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    More about this item

    Keywords

    Cash holdings; Stock options; CEO portfolio Vega; FAS 123R; Expensing;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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