Cash Holdings and Corporate Governance

2022 ◽  
pp. 395-416
Author(s):  
Elif Akben-Selcuk ◽  
Pinar Sener
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Linear Relation ◽  
Cash Holdings ◽  
Family Ownership ◽  
Board Structure ◽  
Factors Affecting ◽  
Cash Reserves ◽  
Nonfinancial Firms ◽  
Corporate Cash Holdings

This chapter investigates the empirical factors affecting corporate cash holdings with special emphasis on corporate governance variables for a sample of Turkish-listed nonfinancial firms over the period 2006 to 2010. The findings reveal a significant non-linear relation between family ownership and cash holdings. In addition, while board structure does not significantly affect the level of cash holdings, tunneling increases cash reserves of firms. Furthermore, the results indicate that cash flow, leverage, other liquid assets that can be used as cash substitutes, the degree of tangibility of assets, and firm size are important in determining cash holdings among Turkish companies.

Cash Holdings and Corporate Governance

2020 ◽  
pp. 133-161
Author(s):  
Elif Akben-Selcuk ◽  
Pinar Sener
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Linear Relation ◽  
Cash Holdings ◽  
Family Ownership ◽  
Board Structure ◽  
Factors Affecting ◽  
Cash Reserves ◽  
Nonfinancial Firms ◽  
Corporate Cash Holdings

This chapter investigates the empirical factors affecting corporate cash holdings with special emphasis on corporate governance variables for a sample of Turkish-listed nonfinancial firms over the period 2006 to 2010. The findings reveal a significant non-linear relation between family ownership and cash holdings. In addition, while board structure does not significantly affect the level of cash holdings, tunneling increases cash reserves of firms. Furthermore, the results indicate that cash flow, leverage, other liquid assets that can be used as cash substitutes, the degree of tangibility of assets, and firm size are important in determining cash holdings among Turkish companies.

scholarly journals The Determinants of Corporate Cash Holdings: The Case of a Small Emerging Market

2016 ◽  
Vol 8 (1) ◽  
pp. 143
Author(s):  
Ghada Tayem
Keyword(s):  
Cash Flow ◽  
Emerging Market ◽  
Cash Holdings ◽  
Estimation Methods ◽  
Dynamic Effects ◽  
Growth Opportunities ◽  
Trade Off ◽  
Cash Flow Volatility ◽  
Cash Reserves ◽  
Corporate Cash Holdings

This study investigates the factors influencing the level of corporate cash holdings in the context of Jordan, a small emerging market characterized by large market frictions. This article employs the framework of the trade off, financing hierarchy, and managerial discretion theories to predict determinants of cash reserves. Then it examines these predictions using a sample of listed nonfinancial Jordanian firms over the period 2005-2013 using alternative estimation methods. Consistent with the trade-off theory, the results show that firm size and cash substitutes have negative and significant impact on cash holdings while growth opportunities and cash flow volatility have positive and significant impact. In addition, and consistent with the financing hierarchy view, the results show that cash flow and growth opportunities have positive and significant impact on cash holdings. Also, the study documents that leverage is negatively related to cash holdings while squared leverage is positively related to cash reserves. Finally, the results indicate that there are significant dynamic effects in determining cash holding targets.

scholarly journals Determinants of corporate cash holdings: An empirical study of Chinese listed firms

2018 ◽  
Vol 15 (3) ◽  
pp. 57-65
Author(s):  
Rizwan Ahmed ◽  
Wu Qi ◽  
Subhan Ullah ◽  
Danson Kimani
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Fixed Effects ◽  
Negative Relationship ◽  
Cash Holdings ◽  
Developed Countries ◽  
Bank Debt ◽  
Chinese Context ◽  
The Developed Countries ◽  
Corporate Cash Holdings

This study explores the determinants of corporate cash holdings in the Chinese context. As one of the largest developing countries in the world, China offers an interesting opportunity to explore the role of corporate governance, and ownership structure in explaining corporate cash holdings. Owing to the unique economic problems in the developing and emerging economies, this study aims to investigate whether the research findings on developed countries could be generalized globally. Applying fixed-effects estimations on a sample of 115 Chinese firms listed between 2012 and 2016, we find that the level of corporate cash holdings has a significantly negative relationship with leverage, bank debt, non-cash liquid assets and managerial ownership. In particular, cash flow volatility, investment opportunity and dividend have a significantly positive relationship with cash holdings levels. These findings are consistent with the majority of the existing studies carried out in the Western context. We also find that firm size, cash flow, board independence and ownership concentration have a significant influence on the level of corporate cash holdings. Our study contributes to the finance literature and we offer new insights into the relationship between corporate governance and corporate cash holdings in the Chinese context. Some of the findings on the developed countries could be generalized to a wider context. Further, the unique relationship between corporate governance and cash holdings in the Chinese context provides empirical insights for further research.

Investigating the Relationship of Corporate Cash Holdings, Corporate Governance, and Firm Performance in Malaysia

2021 ◽  
pp. 263-283
Author(s):  
Kiarash Ehtiat Karrahemi ◽  
Siti Zaleha Abdul Rasid ◽  
Rohaida Basiruddin ◽  
Maizaitulaidawati Md Husin
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Cash Flow ◽  
Panel Data Analysis ◽  
Cash Holdings ◽  
Free Cash Flow ◽  
Flow Theories ◽  
Relationship Of ◽  
The Relationship ◽  
Corporate Cash Holdings

Current practice shows that firms throughout the world are in favor of high cash holdings; yet, they are still performing well. This situation contradicts the agency and free cash flow theories, which suggest that excessive cash may increase agency costs and lower firm performance. The purpose of this study is to examine the relationship between corporate governance, cash holdings, and firm performance. Five thousand four hundred twenty observations were conducted, and a balanced panel data analysis was performed. The results indicate that corporate governance has a significant impact on cash holdings, corporate governance has a significant impact on firm performance, and cash holding has a significant impact on a firm's performance. The findings of this study do not show any evidence to support the agency and free cash flow theories among non-financial Malaysian firms listed on Bursa Malaysia. Thus, this study contributes to the finance and accounting literature by gaining a better understanding of firm performance indicators in Malaysia, specifically.

scholarly journals Why do firms hold cash? Evidence from Korean stock listings

2016 ◽  
Vol 13 (3) ◽  
pp. 311-321
Author(s):  
Paul Moon Sub Choi ◽  
Joung Hwa Choi
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Credit Rating ◽  
Cash Holdings ◽  
Jel Classification ◽  
External Financing ◽  
Firm Level ◽  
External Finance ◽  
Cash Flow Volatility ◽  
Corporate Cash Holdings

Corporate governance and the availability of external financing can be important determinants of corporate cash holdings. In this research, in line with Opler et al. (1999), the authors find that Korean firms’ cash holdings are affected by firm-level characteristics including firm size, leverage, market to book, cash flow ratio, net working capital, and cash flow volatility in addition to corporate governance. Rather than agency-prone, the authors can ascribe the increase in cash holdings to the precautionary corporate demand for cash (Campbell et al., 2001). The authors also report that operating risks stemming from cash flow volatility, unavailability of external finance, credit rating downgrades, etc., may be associated with precautionary corporate demand for cash. Lastly, it is documented that corporate governance proxied for by block and/or insider ownership stakes is inversely associated with corporate cash holdings. Keywords: demand for money, corporate governance, corporate cash holding. JEL Classification: G39, E41, G34

scholarly journals Corporate Governance, Cash holdings and Value of a Firm: Evidence from Australian Firms

2012 ◽  
Vol 4 (12) ◽  
pp. 606-614 ◽  
Author(s):  
Subba Reddy Yarram
Keyword(s):  
Corporate Governance ◽  
Financial Reporting ◽  
Significant Influence ◽  
Stock Exchange ◽  
Cash Holdings ◽  
Board Independence ◽  
Board Structure ◽  
Average Return ◽  
Actual Return ◽  
Corporate Cash Holdings

The present study analyses influence of board structure and cash holdings on the value of Australian firms for the period 2004 to 2010. Australian Stock Exchange (ASX) adopted the Principles of Good Corporate Governance Guidelines in 2003 and Australian firms have started adopting these principles starting 2004. Similarly the reporting framework of Australian firms is harmonized with the rest of the world with adoption of Australian International Financial Reporting Standards (AIFRS) starting in 2004. Corporate cash holdings despite their significance have not been considered extensively in prior literature outside the US. Cash holdings may have significant influence on the value of the firm as too much excess cash may lead to misuse of these funds by entrenched managers. Corporate governance has a role to play in maintaining appropriate cash holdings and their use. The present has two objectives: it considers the influence of corporate cash holdings on the value of Australian firms; and it examines the role of board structure on the relationship between cash holdings and value of the firm. The present study considers all non-financial firms that are part of the All Ordinaries Index (AOI). The present study constructs Fama French 25 portfolio and estimate the excess return as the difference between actual return and the average return of the relevant FF portfolio. OLS analyses show that board independence has no significant impact on the value of the firm though cash holdings have significant influence. Analysing using panel data methods however unearth the significant influence of board independence on the value of Australian firms.

scholarly journals Family Control And The Value Of Cash Holdings

2015 ◽  
Vol 31 (2) ◽  
pp. 647 ◽  
Author(s):  
Sabri Boubaker ◽  
Imen Derouiche ◽  
Majdi Hassen
Keyword(s):  
Firm Value ◽  
Family Firms ◽  
Cash Holdings ◽  
Firm Resources ◽  
Family Control ◽  
Large Sample ◽  
Listed Firms ◽  
Excess Cash ◽  
Cash Reserves ◽  
Corporate Cash Holdings

The present study investigates the effects of family control on the value of corporate cash holdings. Using a large sample of French listed firms, the results show that the value of excess cash reserves is lower in family firms than in other firms, reflecting investors concern about the potential misuse of cash by controlling families. We also find that the value of excess cash is lower when controlling families are involved in management and when they maintain a grip on control, indicating that investors do not expect the efficient use of cash in these firms. Our findings are consistent with the argument that the extent to which excess cash contributes to firm value is lower when dominant shareholders are likely to expropriate firm resources. Overall, family control seems to be a key determinant of cash valuation when ownership is concentrated.

scholarly journals The Impact of Inflation and Operating Cycle on the Corporate Cash Holdings in South-East Europe

2018 ◽  
Author(s):  
Aleksandar Naumoski ◽  
Péter Juhász
Keyword(s):  
Cash Flow ◽  
Financial Management ◽  
Cash Holdings ◽  
Governance Structure ◽  
Operating Cycle ◽  
East European ◽  
Explanatory Variables ◽  
South East Europe ◽  
The Impact ◽  
Corporate Cash Holdings

Determining optimal cash holding is one of the most crucial issues in the corporate financial management aiming to maximise the shareholder value. The optimum of corporate cash amount is not only dependent on many company-specific factors, but it is also associated with both the corporate governance structure and the institutional and macroeconomic environment. Earlier research papers showed that at the macro level, companies adjust their cash holdings to the changes in the level of the inflation and, at the micro level, to the changes of the operating cycle linked to the turnover of the corporate cash flow. This paper investigates the determinants of corporate cash holdings for a sample of 868 firms from ten South-East European countries (Bosnia and Herzegovina, Bulgaria, Montenegro, Croatia, Greece, Romania, Macedonia, Slovenia, Serbia and Turkey). More specifically, we investigate the influence of the inflation and the corporate operating cycle on the corporate cash holdings. Using company financial data and the country CPI for the period 2006-2015, we apply a balanced panel regression model involving the yearly change of the cash ratio as a dependent variable, and country CPI, operating cycle and other firm-specific control variables as explanatory variables.  Results confirm that both the inflation rate and the operating cycle have substantial influence on the change of the corporate cash holdings also in the region. The relationship of the change in cash and the inflation is non-linear and best described by a U-shaped curve. That means that corporate cash holdings decrease as the level of inflation increases to a critical point but beyond that, the cash holdings start to increase. At the same time, we identified a straight linear relationship between the change in cash holdings and the length of the operating cycle. Also, we found that the change in the corporate cash holdings is positively related to the size of the company, the operating cash flow and the capital expenditures. In addition, it is inversely associated with both the change of the net working capital and the change of short and long-term debt.

How does Buddhism affect corporate cash holdings?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yaoqin Li ◽  
Xichan Chen ◽  
Wanli Li ◽  
Xixiong Xu
Keyword(s):  
Corporate Governance ◽  
Cash Holdings ◽  
Institutional Ownership ◽  
Religious Culture ◽  
Legal Institutions ◽  
Governance System ◽  
Heckman Selection Model ◽  
Content Type ◽  
The Impact ◽  
Corporate Cash Holdings

PurposeThis study explores whether and how Buddhism impacts corporate cash holdings. Buddhist culture affects investors' perception of how cash is deployed and then influences corporate cash holdings. This study first examines the impact of Buddhism on corporate cash holdings and then investigates whether formal governance mechanisms such as legal institutions and institutional ownership influence the relationship between Buddhism and corporate cash holdings.Design/methodology/approachThe authors conduct empirical tests with data on Chinese listed companies between 2006 and 2019. Buddhism is measured with the natural logarithm of the number of Buddhist temples within a radius of a certain distance around a firm's headquarters. The authors adopt the OLS method to regress and take the 2SLS method, Heckman selection model and FEVD approach to address the endogeneity issue.FindingsThe results show a positive relationship between Buddhism and corporate cash holdings. This positive relation is more prominent for firms located in regions with weak legal institutions and for firms with low institutional ownership. Further analysis shows that Buddhism works through the channel of alleviating agency problems and finally improves the value of cash to investors.Research limitations/implicationsThe authors’ findings have important implications. First, this study provides inspiration for incorporating the ethical values of traditional cultures, such as Buddhism, into the corporate governance system. Second, the findings imply that informal institutions can influence corporate financial decisions beyond the effect of formal institutions, suggesting that informal systems should be emphasized when dealing with business affairs in countries where legal institutions are relatively weak. Third, the results suggest the significance of encouraging research on religious culture to explore its active role in corporate governance.Originality/valueThis study illustrates the positive value of religious culture in advancing corporate governance by relating Buddhism to corporate cash holdings based on the explanation of investors' perception. It makes a marginal contribution to the literature that investigates the determinants of cash policies and explores the firm-level consequences of religious culture, adding to the research area of culture and corporate finance.

Corporate Governance and Cash Holdings

2021 ◽  
pp. 305-321
Author(s):  
Ahmed Hassanein
Keyword(s):  
Corporate Governance ◽  
Cash Holdings ◽  
Opportunistic Behavior ◽  
Governance System ◽  
Firm Level ◽  
Corporate Managers ◽  
Country Level ◽  
Corporate Governance System ◽  
The Impact ◽  
Corporate Cash Holdings

Corporate cash induces the opportunistic behavior of corporate managers that can create an agency problem. A corporate governance system controls the opportunistic behavior of managers and can affect the firm's policy on holding cash. This study explains how the aspects of corporate governance, country-level and firm-level governance, can affect the corporate policy on holding cash. First, the study provides the nature, definition, and importance of corporate cash holdings. Second, it outlines various motivations and theories behind holding corporate cash. Third, it explains the relation between firm-level governance and corporate cash holdings. Fourth, it focuses on the impact of firm-specific governance attributes on the level of corporate cash holdings. Fifth, it presents the relation between country-level governance and corporate cash holdings.

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