Managerial Entrenchment and Corporate Liquidiity Management

Chief executive officers prone to managerial entrenchment and shareholders often have conflicting interests. This problem influences many aspects of corporate management including corporate liquidity policy and its optimal amounts of cash holdings. This research paper focuses not exclusively on CEO entrenchment alone but looks at the agency cash holding motives from different perspectives simultaneously: CEO entrenchment, corporate governance level, CEO tenure, CEO common shares ownership and corporate choice of leverage. Several results were obtained. CEO entrenchment has no significant influence on cash holdings while corporate governance is shown to have an impact and effectively reduces excess cash holdings. CEO tenure has a negative effect on cash accumulation signaling about CEO experience while CEO ownership has no impact on the cash to assets ratio. Leverage is negatively associated with the level of cash holdings what characterizes debt as a cash substitute. Alternative regression specification and introduction of sector interaction with ownership do not affect results which makes them more robust.