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Ex Post Bargaining, Corporate Cash Holdings, and Executive Compensation

Published online by Cambridge University Press:  21 December 2020

Yingmei Cheng Open the ORCID record for Yingmei Cheng [Opens in a new window] ,
Jarrad Harford ,
Irena Hutton  and
Stephan Shipe
Yingmei Cheng*
Affiliation:
Florida State University College of Business
Jarrad Harford
Affiliation:
University of Washington Foster School of Businessjarrad@uw.edu
Irena Hutton
Affiliation:
Florida State University College of Businessihutton@business.fsu.edu
Stephan Shipe
Affiliation:
Wake Forest University School of Businessshipes@wfu.edu
*
ycheng@business.fsu.edu (corresponding author)
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Abstract

We show that high cash holdings can be used by executives in the ex post bargaining over their compensation. Cash holdings are positively associated with CEO compensation and is driven by non-salary components. In companies with weaker governance, this relation is more pronounced. Using exogenous shocks to the firm’s cash, we show that CEO compensation readily responds to increases in cash holdings, confirming that managers are able to derive personal benefits from excess cash holdings.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 3 , May 2022 , pp. 957 - 987
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank an anonymous referee, Jennifer Conrad (the editor), seminar participants at The City University of Hong Kong, University of South Florida, Florida State University, DePaul University, Hunan University, and Wuhan University, and participants at both the 2014 FMA Annual Meeting and 2017 FBR conference.

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