Three Essays on Corporate Cash Policy and Productivity

Abstract

In this thesis, I study corporate cash policy and firm-level productivity through three papers. Specifically, the first paper studies the implications of financial hedging for corporate cash policy and the value of cash holdings, using a web crawler program to collect data on the use of financial derivatives between 1993 and 2016. The key finding is that firms with financial hedging programs have smaller cash reserves but a higher value of cash than firms without hedging contracts in place. In addition, financial hedging not only increases the investment sensitivity to internal cash, but also has a positive effect on investment efficiency.

The second paper examines the motive of holding cash by studying the empirical relationship between CEO ownership and corporate cash holdings, using a sample of US firms from 1992 to 2018. Using two proxies for CEO ownership, stock ownership and the ratio of a CEO's stock and option delta to a firm's stock and option delta, the finding shows a monotonic and positive relation between CEO ownership and cash holdings, which is theoretically supported by the precautionary motive for holding cash.

The third paper tests whether firm-specific investor sentiment (FSIS) in the financial markets affects firm-level productivity, using a sample of US public firms from 2010 to 2019. The results show a positive relation between FSIS and total factor productivity, and the positive impact of FSIS on productivity is more pronounced for firms with less exposure to automated production, more managerial ownership, tighter financial constraints, and higher innovative efficiency.