Can manager conservatism explain corporate cash holdings? Evidence from the Eurozone

Abstract: Differences in cash holdings across firms have traditionally been explained by precautionary savings motives. However, in line with a recent U.S. study, we identify a group of European industrial companies with a particularly high ratio of cash to assets, which cannot be explained by precautionary savings, agency or tax motives. We hypothesize that these firms are managed by conservative executives and develop four proxies for conservatism to study their impact on cash holdings. We find support for the notion that differences in age, professional background, and compensation structure aid in our understanding of cash policies. We find no evidence of a relationship between gender and cash holdings.