TY - JOUR
T1 - Managerial optimism and corporate cash holdings
AU - Tran, Ly Thi Hai
AU - Tu, Thoa Thi Kim
AU - Hoang, Thao Thi Phuong
N1 - Publisher Copyright:
© 2020, Emerald Publishing Limited.
PY - 2021/3/8
Y1 - 2021/3/8
N2 - Purpose: This paper examines the effects of managerial optimism on corporate cash holdings. Design/methodology/approach: The authors construct a novel measure of managerial optimism based on the linguistic tone of annual reports by applying a Naïve Bayesian Machine Learning algorithm to non-numeric parts of Vietnamese listed firms' reports from 2010 to 2016. The paper employs firm and year fixed effects model and also uses the generalized method of moments estimation as robustness checks. Findings: The authors find that the cash holding of firms managed by optimistic managers is higher than the cash holdings of firms managed by non-optimistic managers. Managerial optimism also influences corporate cash holdings through internal cash flows and the current year’s capital expenditures. Although the authors find no evidence that optimistic managers hold more cash to finance future growth opportunities in general, optimistic managers hold more cash for near future investment opportunities than non-optimistic managers do. Research limitations/implications: The novel measure proposed in this study is expected to provide great potential for future finance studies investigating the relation between managerial traits and corporate policies since it is applicable for any levels of financial market development. In addition, the findings highlight the important role, both direct and indirect, of managerial optimism on cash holdings. Related future research should take this psychological trait into account to gain a better understanding of corporate cash holding. Originality/value: This paper helps to extend the literature on managerial optimism measurement by introducing a new measure of managerial optimism based on the linguistic tone of annual reports. Furthermore, this is among the first studies directly linking annual report linguistic tone to cash holding. The paper also provides new evidence regarding how managerial optimism affects the relationship between the firm's growth opportunities and cash holding, given that mispricing corrections are naturally uncertain.
AB - Purpose: This paper examines the effects of managerial optimism on corporate cash holdings. Design/methodology/approach: The authors construct a novel measure of managerial optimism based on the linguistic tone of annual reports by applying a Naïve Bayesian Machine Learning algorithm to non-numeric parts of Vietnamese listed firms' reports from 2010 to 2016. The paper employs firm and year fixed effects model and also uses the generalized method of moments estimation as robustness checks. Findings: The authors find that the cash holding of firms managed by optimistic managers is higher than the cash holdings of firms managed by non-optimistic managers. Managerial optimism also influences corporate cash holdings through internal cash flows and the current year’s capital expenditures. Although the authors find no evidence that optimistic managers hold more cash to finance future growth opportunities in general, optimistic managers hold more cash for near future investment opportunities than non-optimistic managers do. Research limitations/implications: The novel measure proposed in this study is expected to provide great potential for future finance studies investigating the relation between managerial traits and corporate policies since it is applicable for any levels of financial market development. In addition, the findings highlight the important role, both direct and indirect, of managerial optimism on cash holdings. Related future research should take this psychological trait into account to gain a better understanding of corporate cash holding. Originality/value: This paper helps to extend the literature on managerial optimism measurement by introducing a new measure of managerial optimism based on the linguistic tone of annual reports. Furthermore, this is among the first studies directly linking annual report linguistic tone to cash holding. The paper also provides new evidence regarding how managerial optimism affects the relationship between the firm's growth opportunities and cash holding, given that mispricing corrections are naturally uncertain.
KW - Annual report's tone
KW - Cash holding
KW - Managerial optimism
KW - Mispricing correction
UR - http://www.scopus.com/inward/record.url?scp=85085932735&partnerID=8YFLogxK
U2 - 10.1108/IJMF-04-2019-0129
DO - 10.1108/IJMF-04-2019-0129
M3 - Article
AN - SCOPUS:85085932735
SN - 1743-9132
VL - 17
SP - 214
EP - 236
JO - International Journal of Managerial Finance
JF - International Journal of Managerial Finance
IS - 2
ER -