Abstract

This study evaluates whether a manager’s risk aversion tendency affects the relationship between cash holding and firm value. This study was carried out in four stages. The sample is obtained from firms listed on the Korea Exchange from 2011 to 2017. We conduct four empirical analyses. First, for total sample, we examined which companies are highly risk averse. Second, we examined whether firms with higher risk aversion tendency have higher agency costs. Third, we verified whether a positive relationship between cash holding and firm value is weakened if a manager’s risk aversion tendency is high. Finally, we verified whether such a relation is different by corporate governance. First, a highly profitable professional CEO firm shows high risk aversion tendency. Second, for a highly profitable professional CEO firm, the higher the risk aversion tendency, the higher the agency costs. Third, a positive relation between cash holding and firm value is weakened in firms with high risk aversion tendency. Finally, such a relation differs from the difference of governance. The results of this study will provide important implications for managers and investors’ cash holding decision－makings, by verifying that investors detect and reflect this in the valuation of cash holdings.

Keywords

• Risk aversion tendency
• Cash holding
• Agency costs
• Firm value

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