93 NTU Management Review Vol. 31 No. 1 Apr. 2021 4.2 New Economy versus Old Economy For the second hypothesis, we decompose our sample into new-economy and oldeconomy firms, respectively. Since firms in the new economy tend to hoard excess cash assets to defend higher business risk (Chen, 2008), firms in the old economy are more likely to view excess cash holdings as buffers against unexpected shocks. That is, the role of cash holdings in amplifying the risk incentive of ESOs would be more apparent for CEOs in old-economy firms. Therefore, the higher likelihood of cash-rich firms conducting ESOs-induced M&As would be more pronounced in old-economy firms than in neweconomy firms. Following prior studies (Ittner, Lambert, and Larcker, 2003; Murphy, 2003), we define firms with Standard Industry Code codes 3570, 3571, 3572, 3576, 3577, 3661, 3674, 4812, 4813, 5045, 5961, 7370, 7371, 7372, and 7373 as the new economy group; and those with SIC codes less than 4000 but not categorized as the new economy group are defined as the old economy group. Table 4 examines the effect of excess cash holdings on the ESOs-induced M&A decisions for firms in different industry economies and reports the marginal effects of the probit model. Panel A covers the full sample and shows the significantly positive coefficient of Vega×Cashrich is only observed in old-economy firms. That is, while firms in the new economy tend to hold excess cash due to the higher business uncertainty, such uncertainty also makes them less likely to use excess cash as the buffer when they undertake ESOs-induced investments. Therefore, the effect of excess cash on the ESOsinduced M&A decision is more noticeable in old-economy firms, supporting our second hypothesis. Panels B to D show analyses for firms between old and new economies based on different subsamples that we have defined in Table 3. Overall, the results are consistent with panel A. The effect of excess cash on the risk taking induced by ESOs (vega) via M&As is more pronounced for firms in the old economy than those in the new economy.
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