Cash Holdings and CEO Turnover

The determinants of firm level cash holdings are well documented, yet relatively less is known about the influence of CEO characteristics on corporate liquidity decisions. We examine changes in cash holdings around CEO turnover events, a period in which discrete changes in managerial preferences and abilities are likely to have the most dramatic effect on cash holdings. Our results suggest that cash holdings increase significantly following forced departures. The increase is persistent over the successor's tenure and is robust to controls for the standard firm-level determinants of cash holdings and corporate governance characteristics. Cash savings come mainly from increased efficiency in the management of net working capital, as opposed to asset sales or reductions in investment. Lastly, the marginal value of cash does not decrease following the turnover, indicating that the increase in cash holdings is not a result of agency problems between the new manager and shareholders