Do female executives and CEO tenure matter for corporate cash holdings? Insight from a Southeast Asian country

• DOI: https://doi.org/10.1108/CG-07-2020-0290
• Published date: 11 April 2021
• Date: 11 April 2021
• Pages: 939-960
• Subject Matter: Strategy,Corporate governance
• Author: Suherman Suherman,Berto Usman,Titis Fatarina Mahfirah,Renhard Vesta

Do female executives and CEO tenure

matter for corporate cash holdings?

Insight from a Southeast Asian country

Suherman Suherman, Berto Usman, Titis Fatarina Mahfirah and Renhard Vesta

Abstract

Purpose –This paper aims to investigate the relationship between female executives, chief executive

officer (CEO) tenure and corporate cash holdings in the context of the developing Southeast Asian

capitalmarket (Indonesia).

Design/methodology/approach –The sample was screenedfrom 231 publicly listed companies in the

Indonesian Stock Exchange.The period of observation was 2011–2017. Two measureswere applied for

corporate cash holdings: the ratio of cash and cash equivalent to total assets and cash and cash

equivalent to net assets. Three surrogate indicators were used for femaleexecutives: female CEO, the

proportion of female members in the board of management and the number of female members in the

board of management. CEO tenure is the length of time a CEO has been a member of the board of

management. This study uses panel data regression analysis, including the fixed effect model with

clusteredstandard errors.

Findings –The empirical evidence indicatesthat female executives and CEO tenure are positively and

negatively associated with corporate cash holdings, respectively, and both are significantly related.

Additional analysis using lagged independent variables remains consistent with the main analysis,

suggesting that corporate cash holding becomes higher as a female presence in the board of

managementincreases.

Research limitations/implications –Empirical tests set in Indonesia suggest that female executives

are more conservative and risk-averse, thereby holding more cash with a precautionary motive. The

findings also imply that CEOs with long tenure focus on long-term performance such as increasing

research and development investments or capital expenditure, thus holding less cash. Accordingly,

policymakers and regulators should promote diversity issues proportionally and advance to the board

level.

Originality/value –This study contributes to the field of executive and CEO studies by enriching the

empiricalfindings in related topics. In addition, to the bestof the authors’ knowledge, this is one of the first

studies applying two measures of cash holdings in the setting of a developing Southeast Asian capital

market(Indonesia).

Keywords Female executives, CEO tenure, Corporate cash holdings, Indonesian stock exchange

Paper type Research paper

1. Introduction

A paper published by the Asian Economic Journal in 2014 entitled, “Corporate Cash

Holding in Asia,” asserted that Asian companies maintained a high ratio of cash holdings to

total assets (Horioka and Terada-Hagiwara, 2014). In Southeast Asia, Indonesia reportedly

maintained a high cash ratio of 12.13%, which was slightly lower than the average of its

peer countries (i.e. Vietnam 12.54%, Malaysia 13.28% and Singapore 19.02%). Holding a

high cash ratio is deemed by the literature as irrelevant because, in the perfect capital

market, companies might easily raise funds to sponsor profitable business projects at

negligible transaction cost and because of this, the shareholders’ wealth remains

Suherman Suherman is

based at the Faculty of

Economics, Universitas

Negeri Jakarta, Jakarta,

Indonesia.

Berto Usman is based at

the Faculty of Economics

and Business, University of

Bengkulu, Indonesia.

Titis Fatarina Mahfirah is

based at the Faculty of

Economics, Universitas

Negeri Jakarta, Jakarta,

Indonesia. Renhard Vesta

is based at the Faculty of

Economics, Universitas

Negeri Jakarta, Jakarta,

Indonesia.

Received 10 July 2020

Revised 15 October 2020

9 December 2020

22 January 2021

26 January 2021

9 February 2021

Accepted 9 February 2021

The authors are grateful to

Corporate Governance’s

editors and the anonymous

reviewers for their helpful

comments.

DOI 10.1108/CG-07-2020-0290 VOL. 21 NO. 5 2021, pp. 939-960, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 939

unchanged during reinvestment of liquid assets (Guizani, 2017). Remarkably, prior studies

reveal that in practice, there are more companies investing in liquid assets (i.e. cash or

near-cash instruments) by maintaining a reasonable level of important cash holdings

(Dittmar et al.,2003;Gao et al.,2013;Atif et al.,2019). Therefore, the question of how

corporate cash holdings are affected by their financial determinants has received

significant investigation (e.g. Bates et al., 2009;Gore, 2009;Duchin, 2010;Al-Najjar and

Belghitar, 2011;Song and Lee,2012;Sun et al.,2012;Uyar and Kuzey, 2014;Harford et al.,

2014;Pinkowitz et al.,2016;Guizani, 2017;Asimakopoulos et al., 2019). However, the

potential link has gained minor attention in the literature investigating female executives and

chief executive officer (CEO) tenure as associate factors of corporate cash holdings in

Southeast Asian countries. This study aims to fill the research gap by questioning and

exploring the relationship between female executives, CEO tenure and corporate cash

holdings in the context ofa developing Southeast Asian country (Indonesia).

Our study is motivated in two ways. First, gender(male vs female executives) is considered

to be a pivotal factor, apart from the role of firm-specific characteristics (i.e. financial

performance) and governance, in explaining corporate cash holdings (Ajanthan and

Kumara, 2017). Recognizing that previous empirical research in this arena has produced

mixed results, it is possible to contend for positive and negative links between gender (i.e.

female executives) and corporate cash holdings. A positive link between female executives

and cash holdings arises if female executives display reluctance to assume any risks

related to company cash policies. This circumstance is interpreted by Adhikari (2018) and

La Rocca et al. (2019) as female executives aremore likely to hold more cash compared to

their male counterparts because of the precautionary motives of unexpected financing.

Correspondingly, Zeng and Wang (2015) argue that firms with female CEOs are more likely

to hold more cash on the grounds of precaution because they are less concerned about the

opportunity cost that could be generated by the available cash. Consequently, the firm

might lose investment opportunities, resulting in decreasing shareholders’value. A negative

link may occur if female executives focus on sustainability issues. Surprisingly, Liu (2018)

observed that firms with a greater proportion of female members on the board of

management are interested in corporate social responsibility initiatives and actions. It was

noted that female executives bring diverse perspectives and offer environment-related

solutions that may improve the quality of the strategic decision-making process at the

corporate level. A recent study by Lin et al. (2018) revealed that female executives’

knowledge and expertise somehowinfluence company innovation. Firms with a high level of

gender diversity address problems differently and generate various ideas with alternate

solutions.

Second, we conjecture that CEO tenure is associated with corporate cash holdings.

Despite the CEOs’ characteristics, there is increasing support regarding the notion that a

qualified CEO with a longer tenure helps a company grow better in the long term (Lim

and Lee, 2019). Lim and Lee (2019) indicate that as CEO tenure increases, the CEO’s

experiences, expertise and knowledge also expand and this corresponds to a firm’s

long-term financial performance, implying a positive relationship. Additionally, the

prolongation of a CEO’s appointment is more likely to drive the CEO to initiate efficient

strategies in improving business performance and to maintain their reputation. In

contrast to long-tenured CEO appointments, Hambrick et al. ( 1993) and Richard et al.

(2009) documented that in the preliminary stages of their appointments short-tenured

CEOs must acquire fundamental knowledge of the organization and environment.

Therefore, they are more likely to envisage several alternate financial actions with an

external focus and acknowledge new ideas in response to changes and potential

experimentation. These actions indicate that short-tenured CEOs seek more investment

opportunities in their initial stages of appointment, thus allowing the argument of lower

cash levels (Orens and Reheul, 2013).

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