The power of prestige: How CEO prestige shapes corporate cash strategies

This study examines the impact of CEO prestige power on cash holdings. We developed a novel measure to assess CEO prestige power, considering exceptional qualifications, external board roles, media visibility, and firm performance in relation to the industry. Our investigation is based on an extensive dataset comprising all non-financial companies listed on the S&P 500 and covering 6,240 firm-year observations from 2005 through 2020. Our findings reveal a positive and significant relationship between CEO prestige power and cash holdings, indicating that prestigious CEOs tend to maintain larger cash reserves compared to their less prestigious counterparts. Economically, the findings indicate that firms with prestigious CEOs tend to hold 6.21% more cash compared to those with non-prestigious ones. Additionally, we find that dividend payments and firm age negatively moderate the relationship between CEO prestige and corporate cash holdings, while CEO tenure serves as a positive moderator.