Introduction
Grounded in Upper Echelons Theory (UET), this study explores how a psychological trait of financial decision makers (FDMs) may influence a specific facet of a firm's strategic financial choices. Specifically, this study innovates by investigating the relationship between the mindfulness of FDM and firm cash-holdings, while accounting for relevant contingency factors.
Among financial decisions, cash-holding is particularly important, as it provides liquidity, serves as a buffer against uncertainty, and can finance potential investments. Given the central responsibility for financial management, the FDMs characteristics are likely to exert a considerable influence over such policies.
In this context, mindfulness, defined as heightened present-centered awareness, emerges as a key trait. Mindful FDMs, through greater clarity, deliberate decision-making, and heightened ethical awareness, tend to hold more cash to meet obligations during downturns, maintain flexibility for unforeseen challenges, and seize potential investment opportunities.
However, following UET, the relationship between FDMs' mindfulness and cash-holding is likely to be moderated by personal and contextual factors. Older firms, with deeper-rooted inertia and greater pressure to meet expectations, tend to be more conservative, potentially amplifying the effect of mindfulness. Likewise, when FDMs are discouraged from seeking external financing, the emphasis on liquidity may increase further.
Purpose
This study investigates the impact of FDMs' mindfulness on firm cash-holding policies, extending UET to FDMs, while also examining the moderating effects of firm age and borrower discouragement.
Method
Survey data were collected from 468 FDMs of manufacturing and service firms in mainland Portugal, with minimum of 10 employees. Analyses controlled for UET-related role characteristics and individual-specific factors.
Results
FDMs' mindfulness is positively associated with cash-holdings. This relationship is stronger in older firms and under borrower discouragement.
Conclusions
This study extends UET to FDMs, demonstrating the role of mindfulness in shaping cash-holding decisions and clarifying financial decision-making by addressing potential decision biases, with implications for hiring processes.