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Vertical interlock and the value of cash holdings

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  • Xin Chen
  • Chang Yang

Abstract

We test whether vertical interlock endangers cash resources that manifests in a lower value of cash in listed companies affiliated with business groups. Using a sample of 9,032 observations from 2007 to 2016 in the Chinese market, we find that investors tend to value cash holdings in companies with vertical interlock substantially less than in those without. The marginal effect of vertical interlock on the value of cash remains significantly negative after controlling for existing governance mechanisms, accounting conservatism and internal control quality, shedding light on agency problems between majority shareholders and minority shareholders within business groups of emerging markets.

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  • Xin Chen & Chang Yang, 2021. "Vertical interlock and the value of cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 561-593, March.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:1:p:561-593
    DOI: 10.1111/acfi.12587
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    2. Guangrui Liu & Hao Qian & Qianqian Wu & Fei Han, 2024. "Research on the masking effect of vertical interlock on ESG greenwashing in the context of sustainable Enterprise development," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 196-209, January.

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