107 NTU Management Review Vol. 31 No. 1 Apr. 2021 Panel B: Z-Score Dep: MA t High-Default-Risk Firms Low-Default-Risk Firms (1) (2) (3) (1) (2) (3) Full Sample All-Cash Deals Within Industry Deals Full Sample All-Cash Deals Within Industry Deals Vega t-1 Delta t-1 Cashrich t-1 . Vega×Cashrich P-value on the diff. in High vs. Low Delta×Cashrich 0.0853 (0.95) -0.0239 (-0.81) 0.00198 (0.10) -0.0907 (-0.66) 0.323 0.0369 (1.00) 0.0218 (0.31) -0.0122 (-0.51) 0.0184 (1.14) 0.142 (1.10) 0.239 -0.0499 (-0.95) 0.0699 (0.87) -0.0257 (-0.94) 0.0195 (1.08) -0.0451 (-0.33) 0.407 -0.00592 (-0.14) 0.0699** (2.14) 0.00658 (0.93) -0.0258** (-2.52) 0.0802* (1.89) -0.0128 (-1.33) 0.0446* (1.82) -0.00109 (-0.20) -0.00939 (-1.22) 0.0419 (1.37) -0.000929 (-0.13) 0.0484* (1.95) 0.0113** (2.16) -0.0301*** (-3.67) 0.0713** (2.24) -0.00652 (-0.91) Controls Year fixed effect Number of observations R-squared Yes Yes 1,560 0.062 Yes Yes 1,226 0.152 Yes Yes 1,517 0.082 Yes Yes 11,993 0.023 Yes Yes 11,008 0.045 Yes Yes 11,103 0.037 Note: This table examines whether the effect of excess cash on the ESOs-induced M&A decision is more attributed to the contracting hypothesis or the precautionary motive. All variables are defined in the same way as shown in the Appendix. Panels A and B demonstrate the analyses base on different measurements. The results are shown in the marginal effect of probit model that controls for the time fixed effect. The t-statistics are reported in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively. unexpected shocks. Thus, we argue excess cash holdings might amplify the risk incentive effect of ESOs (vega) on M&A decisions. By examining the S&P 1500 firms from 1992 to 2014, we find the likelihood of managers conducting ESOs-induced M&As is greater in cash-rich firms than in noncash-rich firms, indicating excess cash holdings encourage managers with greater vega compensation to conduct idiosyncratic risk taking via M&As. Such a positive effect of excess cash on the ESOs-induced M&A decisions is more pronounced in firms with low leverage and those in the old economy. Further, we find marginal evidence that the market Table 9 Robustness Test: The Contracting Effect (cont.)
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