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Tournament-Based Incentives, Corporate Cash Holdings, and the Value of Cash

  • Hieu V. Phan, Thuy Simpson and Hang T. Nguyen


This research examines the relations between tournament-based incentives and corporate cash holdings and the value of cash. We find robust evidence that tournament-based incentives are positively related to cash holdings and the value of cash. Moreover, the effect of tournament-based incentives on the value of cash is stronger for financially constrained firms. Our evidence indicates that as tournament-based incentives motivate riskier corporate policy choices that lead to not only larger expected shareholder value but also greater cash-flow uncertainty, firms increase cash holdings to cushion potential liquidity shortfalls that may cause underinvestment.


Corresponding author

* Phan (corresponding author),, Manning School of Business, University of Massachusetts Lowell; Simpson,, Seidman College of Business, Grand Valley State University; and Nguyen,, Eli Broad College of Business, Michigan State University.


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We appreciate the helpful comments from Thomas Bates (the referee), Charlie Hadlock, Jarrad Harford (the editor), and Emre Unlu as well as session participants at the 2015 Financial Management Association International Annual Meetings and seminar participants at Hanoi Foreign Trade University, Hanoi National Economics University, and the University of Massachusetts Lowell. All errors remain the sole responsibility of the authors.



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