There is a large body of literature that supports the notion that managerial ownership
can help align the interests of managers with those of shareholders. That is,
with increased managerial ownership, managers are less likely to divert resources
away from value maximisation as they bear part of the costs of their actions. To
the extent that this is the case and holding cash is costly, one would expect a negative relationship between managerial ownership and cash holdings (i.e. the incentivealignment
effect). Furthermore, lower expected agency costs due to the alignment
of interests are likely to increase the firm’s ability to raise external finance, which
would reduce firms’ incentives to accumulate cash.