Using a hand-collected dataset, this research contributes to the literature on how CEO personal qualities influence company choices and decision-making. To accomplish this, it investigates the relationship between the CEO’s personal celebrity and cash reserves.
Our sample includes all non-financial businesses that were listed on the S&P 500 between 2005 and 2020. Employing principal component analysis, we create the CEO celebrity index as a multidimensional index that includes CEO media presence, CEO tenure, internal/external CEO appointments and industry-adjusted performance. We also use a high-dimensional fixed effects model with fixed effects for industry and year to analyze the data.
Our findings indicate a positive and significant relationship between the CEO’s personal celebrity and financial reserves. Our findings are consistent with different cash reserve metrics and estimators. Extended investigations show that CEO gender (male), macroeconomic conditions (GDP growth) and corporate diversity all have a negative influence on the association between CEO celebrity and cash reserves, although technology dynamism has a positive impact. Consistent with predictions of upper echelons, agency theory, resource-based theory, and stakeholder theory, this implies that celebrated CEOs tend to reserve more cash than non-celebrated CEOs because celebrated CEOs have more to lose in terms of career prospects and benefits.
(1) This paper is the first, to our knowledge, to establish empirical and theoretical linkages between CEO celebrity and cash reserve policy. (2) It presents a new explanation for why managers, particularly celebrities, want to keep excessive cash reserves. (3) It combines two independent fields of research on CEO personal celebrity and cash reserves policy.
