Female Directors, CEO Overconfidence and Excess Cash
64 Pages Posted: 6 May 2019
Date Written: April 5, 2019
Is the moderating effect of female board representation on the CEO overconfidence sufficiently strong to alter the firms’ excess cash decisions? We address this question using data on 1,163 US-listed firms for 2000-2017. Prior research posits that overly confident CEOs hold less cash compared to their rational counterparts. We show that having more female directors on the board not only stops the decline in excess cash due to the overconfident CEO but also increases excess cash holdings in those firms. Better female board representation enhances corporate decision making through effective monitoring and thus, taming the CEO’s biased behavior i.e., overconfidence.
Keywords: female directors, excess cash, CEO overconfidence, effective monitoring, board diversity
JEL Classification: G30, G32, G38
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