Female executives and corporate cash holdings

ABSTRACT

I find that firms led by female top executives hold more cash, partly due to precautionary motives. To overcome endogeneity concerns, I employ several econometric techniques, including an instrumental variable analysis based on a historical event that resulted in a plausibly exogenous variation in the female workforce participation. Overall, my results are consistent with the view that greater risk-aversion leads female executives to hold more cash.

KEYWORDS:

• Gender
• corporate cash holding
• risk-aversion

JEL CLASSIFICATION:

• G30
• J16

Acknowledgement

I would like to thank Anup Agrawal and seminar participants at 2012 Financial Management Association Meetings and 2012 Southern Finance Association (SFA) Annual Meetings. All errors are my own.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ Fortune reports ‘When he returned to Apple in 1997 the company was, according to his recollection, three months away from bankruptcy. Since then he has treated Apple’s growing cash hoard like a starvation survivor treats food in the larder – something that could disappear at any time’. […] Jobs said [when asked] why Apple didn’t pay dividends, ‘The cash in the bank gives us tremendous security and flexibility’. – Fortune (13 August 2010) http://fortune.com/2010/08/13/why-steve-jobs-doesnt-pay-dividends/.

² See, e.g., Riley and Chow ( 1992), Sunden and Surette ( 1998), Adhikari and O’Leary (2011).

³ In general, an individual’s personal behaviours are found to be consistent with their behaviour at work. For instance, Cronqvist, Makhija, and Yonker (2012) find that CEOs who use bigger mortgages for their own house also use more leverage in their firms.

⁴ Using percentage of women also obtains very similar results.

⁵ I obtain the list of state mobilization rates from Professor David Autor’s website: http://economics.mit.edu/faculty/dautor/data/autacemly06.

⁶ These results are available from the author on request.