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CFO social capital, liquidity management, and the market value of cash✰

Author

Listed:
  • Anderson, Christopher W.
  • Babajide Wintoki, M.
  • Xi, Yaoyi

Abstract

We find that firms with CFOs who have extensive social connections within the finance industry hold less precautionary cash. CFO connections matter more than CEO connections, reflecting the preeminence of CFOs among C-level executives in cash management and negotiating access to corporate finance. Firms reduce the proportion of assets held in cash by seven percentage points in the two years following CFO turnover and the appointment of a CFO with finance industry connections. The stock market valuation of incremental cash holdings of firms with well-connected CFOs is lower than for other firms, consistent with investor recognition of CFO social capital as an alternative means to address constraints on external capital.

Suggested Citation

  • Anderson, Christopher W. & Babajide Wintoki, M. & Xi, Yaoyi, 2024. "CFO social capital, liquidity management, and the market value of cash✰," Journal of Banking & Finance, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624000815
    DOI: 10.1016/j.jbankfin.2024.107163
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    More about this item

    Keywords

    CFO; Networks; Cash management; Information asymmetry; Value of cash; Social capital;
    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
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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