Finance

Debt

Cash flow forecasting

Philosophy

Business

Economics

Cash flow

Operating cash flow

Balance (ability)

Cash and cash equivalents

Cash on cash return

Affect (linguistics)

Cash

External financing

Linguistics

Monetary economics

Medicine

Cash management

Cash flow statement

Physical medicine and rehabilitation

Journal of Corporate Finance

We develop a model of corporate cash holdings that incorporates CEO beliefs. An optimistic CEO views external financing as excessively costly but expects this cost to moderate over time. The optimistic CEO thus delays external financing while funding current investments with existing cash and maintaining a lower cash balance than rational CEOs. We find that, relative to rational CEOs, optimistic CEOs hold 24% less cash, hold lower cash to fund the firms' growth opportunities, and save less cash out of incremental cash flow.

Do CEO beliefs affect corporate cash holdings?