Industry Tournament Incentives and the Product Market Benefits of Corporate Liquidity

We evaluate the link between CEO industry tournament incentives (ITI) and the product market benefits of corporate liquidity. We find that ITI increase the level and marginal value of cash holdings. Furthermore, ITI strengthen the relation between excess cash and market share gains especially for firms that face significant competitive threats. Additionally, for firms with excess cash, higher ITI lead to increased R&D expenses, capital expenditures, and spending on focused acquisitions as well as reduced payouts. Overall, our findings suggest that ITI increase the value of cash by incentivizing CEOs to deploy cash strategically to capture its product market benefits.