CEO Characteristics on Cash Holdings & Overinvestment: Evidence from Indonesian Firms
Keywords:
CEO gender, Upper Echelons Theory, Cash Holdings, Over-investment
Abstract
The purpose of this research is to analyze the influence of CEO characteristic towards firms' cash holdings and over-investment of free cash flow. CEO gender is identified as independent variable where cash holdings and over-investment of free cash flow are the dependent variables. Other CEO characteristic such as age, education, tenure, firm size, market-to-book ratio, leverage, cash flow, capex, networking capital, dividend, free cash flow, managerial and state ownership are the control variable. This research used multiple regression on panel data of a sample of 24 companies listed in index LQ45 for the period from 2013 to 2017 with 61 female CEOs and 59 male CEOs in the sample. The research finds a positive significant relationship between female CEOs, cash holdings and over-investment. The results also show that female CEOs are having a higher level of cash holdings and resulted in lower level of over-investment problems. Female CEO also can mitigate the agency problem in the firm. The UET theory is used to support the findings in which CEO characteristic can influence the company,s performance and financial decision. UET literature focuses on executive demographic to explain corporate investment decision while this paper extends the application of the UET in the area of accounting. This research can be useful for companies to provide opportunities to female to reach the executive levels so that the companies can increase the proportion of women in executive levels. It also encourages policy makers to make regulations that address gender issues in organizations.
References
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Barker III, V. L., & Mueller, G. C. (2002). CEO characteristics and firm R&D spending. Management Science, 48(6), 782-801.
Burki, A. K. (2017). Financial crisis and determinants of capital structure of investment banking sector in Pakistan. Journal of Administrative and Business Studies, 3(3), 153-160.
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Endang, K., & Risal. (2017). The effect of investment decision financing decision dividend payment policy and company size. Journal of Administrative and Business Studies, 3(2), 105-113.
Faccio, M., Marchica, M.-T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance, 39, 193-209.
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Hairudinor, A. H., Barkatullah, Utomo, S., & Jirhanuddin. (2017). Potential investment analysis: A case study at Kotabaru Regency, province of South Kalimantan, Indonesia. International Journal of Business and Economic Affairs, 2(5), 276-287.
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doi:https://doi.org/10.4236/ti.2016.73007
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doi:https://doi.org/10.1016/j.jcorpfin.2016.01.003.
Kurniawati, E. P., & MeilianaIntani, A. (2016). Effect analysis of the use of accounting information, managerial performance and employee performance Towards SMEs. Journal of Administrative and Business Studies, 2(3), 130-142.
Kusnadi, Y., Yang, Z., & Zhou, Y. (2015). Institutional development, state ownership, and corporate cash holdings: Evidence from China. Journal of Business Research, 68(2), 351-359.
doi:https://doi.org/10.1016/j.jbusres.2014.06.023
Liang, S.-H., Hsieh, Y.-T., Lin, H.-C., & Chi, P.-W. (2018). The effect of CEO gender on corporate cash holdings and over-investment problems-Evidence from Taiwan. Advances in Economics and Business, 6(1), 26-35.
doi:https://doi.org/10.13189/aeb.2018.060103
Macmillan, I., Prakash, S., & Shoult, R. (n.d.). The cash paradox: How record cash reserves are inΫluencing corporate behavior. Deloitte Review. Retrieved from https://bit.ly/2kIcW1Q
Megginson, W. L., Ullah, B., & Wei, Z. (2014). State ownership, soft-budget constraints, and cash holdings: Evidence from China’s privatized firms. Journal of Banking & Finance, 48, 276-291.
doi:https://doi.org/10.1016/j.jbankfin.2014.06.011
Ogundipe, L. O., Ogundipe, S. E., & Ajao, S. K. (2012). Cash holding and firm characteristics: Evidence from Nigerian emerging market. Journal of Business, Economics, 1(2), 45-58.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46.
doi:https://doi.org/10.1016/S0304-405X(99)00003-3
Orens, R., & Reheul, A.-M. (2013). Do CEO demographics explain cash holdings in SMEs? European Management Journal, 31(6), 549-563.
doi:https://doi.org/10.1016/j.emj.2013.01.003
Purnamasari, K., & Fitdiarini, N. (2016). Corporate diversification and cash holding. Journal of Administrative and Business Studies, 1(1), 21-27.
Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11(2-3), 159-189.
doi:https://doi.org/10.1007/s11142-006-9012-1
Serfling, M. A. (2014). CEO age and the riskiness of corporate policies. Journal of Corporate Finance, 25, 251-273.
doi:https://doi.org/10.1016/j.jcorpfin.2013.12.013
Ting, I. W. K., Azizan, N. A. B., & Kweh, Q. L. (2015). Upper echelon theory revisited: The relationship between CEO personal characteristics and financial leverage decision. Procedia-Social and Behavioral Sciences, 195, 686-694.
doi:https://doi.org/10.1016/j.sbspro.2015.06.276
Wang, G. Y., et al. (2010). The impacts of free cash flows and agency costs on firm performance. Journal of Service Science and Management, 3(4), 408-418.
Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public Policy, 31(3), 277-300.
doi:https://doi.org/10.1016/j.jaccpubpol.2011.10.005
Xie, J. (2015). CEO career concerns and investment efficiency: Evidence from China. Emerging Markets Review, 24, 149-159.
doi:https://doi.org/10.1016/j.ememar.2015.06.001
Zeng, S., & Wang, L. (2015). CEO gender and corporate cash holdings. Are female CEOs more conservative? Asia-Pacific Journal of Accounting & Economics, 22(4), 449-474.
doi:https://doi.org/10.1080/16081625.2014.1003568
Amess, K., Banerji, S., & Lampousis, A. (2015). Corporate cash holdings: Causes and consequences. International Review of Financial Analysis, 42(Dec 2015), 421-433.
doi:https://doi.org/10.1016/j.irfa.2015.09.007
Anabestani, Z., & Shourvarzi, M. R. (2014). Cash holdings, firm value and corporate governance. Asian Journal of Research in Banking and Finance, 4(4), 128-143.
Bahri, C., E, M. S., & Poniwati, M. (2017). The influence of undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase (An empirical study of Indonesia stock exchange public listed companies). Journal of Administrative and Business Studies, 3(5), 235-247.
Barker III, V. L., & Mueller, G. C. (2002). CEO characteristics and firm R&D spending. Management Science, 48(6), 782-801.
Burki, A. K. (2017). Financial crisis and determinants of capital structure of investment banking sector in Pakistan. Journal of Administrative and Business Studies, 3(3), 153-160.
Charness, G., & Gneezy, U. (2012). Strong evidence for gender differences in risk taking. Journal of Economic Behavior & Organization, 83(1), 50-58.
doi:https://doi.org/10.1016/j.jebo.2011.06.007
Cline, B. N., & Yore, A. S. (2016). Silverback CEOs: Age, experience, and firm value. Journal of Empirical Finance, 35, 169-188.
doi:https://doi.org/10.1016/j.jempfin.2015.11.002
Endang, K., & Risal. (2017). The effect of investment decision financing decision dividend payment policy and company size. Journal of Administrative and Business Studies, 3(2), 105-113.
Faccio, M., Marchica, M.-T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance, 39, 193-209.
doi:https://doi.org/10.1016/j.jcorpfin.2016.02.008
Gala, V., & Julio, B. (2016). Firm size and corporate investment. Retrieved from https://bit.ly/2mQFAyN
Gill, A., & Shah, C. (2012). Determinants of corporate cash holdings: Evidence from Canada. International Journal of Economics and Finance, 4(1), 70-79.
doi:http://dx.doi.org/10.5539/ijef.v4n1p70
Grant Thornton International . (2017). Women in business - New perspectives on risk and reward. Retrieved from https://bit.ly/2lD90yC
Hairudinor, A. H., Barkatullah, Utomo, S., & Jirhanuddin. (2017). Potential investment analysis: A case study at Kotabaru Regency, province of South Kalimantan, Indonesia. International Journal of Business and Economic Affairs, 2(5), 276-287.
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193-206.
doi:https://doi.org/10.5465/amr.1984.4277628
Harford, J., Mansi, S. A., & Maxwell, W. F. (2008). Corporate governance and firm cash holdings in the us. Journal of Financial Economics, 87(3), 535-555.
doi:https://doi.org/10.1016/j.jfineco.2007.04.002
Horne, J. C. V., & Wachowicz Jr, J. (2009). Fundamentals of Ϋinancial management (13th ed.). Upper Sadle River, New Jersey: Prentice Hall.
Huang, J., & Kisgen, D. J. (2013). Gender and corporate finance: Are male executives overconfident relative to female executives? Journal of Financial Economics, 108(3), 822-839.
doi:https://doi.org/10.1016/j.jfineco.2012.12.005
Hunter, D., Mansi, S., & Sah, N. (2015). Cash is queen: Female CEOs’ propensity to hoard cash. (Unpublished working paper, University of South Florida, Tampa, Florida)
Jayaram, S. V. (2016). Malaysian government's initiatives to increase women in workforce makes headway. Retrieved from https://bit.ly/2mlKjYO
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Jiang, X. (2016). Over-investment of free cash flow during CEO’s tenure. Technology and Investment, 7(03), 51.
doi:https://doi.org/10.4236/ti.2016.73007
Johnson, S., Kaufmann, D., McMillan, J., & Woodruff, C. (2000). Why do firms hide? Bribes and unofficial activity after communism. Journal of Public Economics, 76(3), 495-520.
doi:https://doi.org/10.1016/S0047-2727(99)00094-8
Keown, A., Jr., D. S., Martin, J., & Petty, J. (1996). Basic Ϋinancial management. Upper Saddle River, NJ: Prentice Hall.
King, T., & Srivastav, J., A. Williams. (2016). What’s in an education? Implications of CEO education for bank performance. Journal of Corporate Finance, 37, 287-308.
doi:https://doi.org/10.1016/j.jcorpfin.2016.01.003.
Kurniawati, E. P., & MeilianaIntani, A. (2016). Effect analysis of the use of accounting information, managerial performance and employee performance Towards SMEs. Journal of Administrative and Business Studies, 2(3), 130-142.
Kusnadi, Y., Yang, Z., & Zhou, Y. (2015). Institutional development, state ownership, and corporate cash holdings: Evidence from China. Journal of Business Research, 68(2), 351-359.
doi:https://doi.org/10.1016/j.jbusres.2014.06.023
Liang, S.-H., Hsieh, Y.-T., Lin, H.-C., & Chi, P.-W. (2018). The effect of CEO gender on corporate cash holdings and over-investment problems-Evidence from Taiwan. Advances in Economics and Business, 6(1), 26-35.
doi:https://doi.org/10.13189/aeb.2018.060103
Macmillan, I., Prakash, S., & Shoult, R. (n.d.). The cash paradox: How record cash reserves are inΫluencing corporate behavior. Deloitte Review. Retrieved from https://bit.ly/2kIcW1Q
Megginson, W. L., Ullah, B., & Wei, Z. (2014). State ownership, soft-budget constraints, and cash holdings: Evidence from China’s privatized firms. Journal of Banking & Finance, 48, 276-291.
doi:https://doi.org/10.1016/j.jbankfin.2014.06.011
Ogundipe, L. O., Ogundipe, S. E., & Ajao, S. K. (2012). Cash holding and firm characteristics: Evidence from Nigerian emerging market. Journal of Business, Economics, 1(2), 45-58.
Opler, T., Pinkowitz, L., Stulz, R., & Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46.
doi:https://doi.org/10.1016/S0304-405X(99)00003-3
Orens, R., & Reheul, A.-M. (2013). Do CEO demographics explain cash holdings in SMEs? European Management Journal, 31(6), 549-563.
doi:https://doi.org/10.1016/j.emj.2013.01.003
Purnamasari, K., & Fitdiarini, N. (2016). Corporate diversification and cash holding. Journal of Administrative and Business Studies, 1(1), 21-27.
Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11(2-3), 159-189.
doi:https://doi.org/10.1007/s11142-006-9012-1
Serfling, M. A. (2014). CEO age and the riskiness of corporate policies. Journal of Corporate Finance, 25, 251-273.
doi:https://doi.org/10.1016/j.jcorpfin.2013.12.013
Ting, I. W. K., Azizan, N. A. B., & Kweh, Q. L. (2015). Upper echelon theory revisited: The relationship between CEO personal characteristics and financial leverage decision. Procedia-Social and Behavioral Sciences, 195, 686-694.
doi:https://doi.org/10.1016/j.sbspro.2015.06.276
Wang, G. Y., et al. (2010). The impacts of free cash flows and agency costs on firm performance. Journal of Service Science and Management, 3(4), 408-418.
Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public Policy, 31(3), 277-300.
doi:https://doi.org/10.1016/j.jaccpubpol.2011.10.005
Xie, J. (2015). CEO career concerns and investment efficiency: Evidence from China. Emerging Markets Review, 24, 149-159.
doi:https://doi.org/10.1016/j.ememar.2015.06.001
Zeng, S., & Wang, L. (2015). CEO gender and corporate cash holdings. Are female CEOs more conservative? Asia-Pacific Journal of Accounting & Economics, 22(4), 449-474.
doi:https://doi.org/10.1080/16081625.2014.1003568
Published
2018-12-28
How to Cite
Bella Joy Winarta, Neneng Djuaeriah, & Yosman Bustaman. (2018). CEO Characteristics on Cash Holdings & Overinvestment: Evidence from Indonesian Firms. Journal of Management Practices, Humanities and Social Sciences, 2(2), 28-34. Retrieved from https://global-jws.com/ojs/index.php/global-jws/article/view/11
Section
Articles
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