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Cash and Corporate Control

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  • OLUBUNMI FALEYE
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    Abstract

    The takeover market is often suggested as appropriate for containing the agency problems of excessive corporate cash holdings. However, recent studies report contradictory evidence. I focus on the takeover-deterrence effects of corporate liquidity and suggest the proxy contest as an effective alternative control mechanism. I find that proxy fight targets hold 23% more cash than comparable firms, and that the probability of a contest is significantly increasing in excess cash holdings. Proxy fight announcement return also is positively related to excess cash. Following a contest, executive turnover and special cash distributions to shareholders increase, while cash holdings significantly decline. Copyright 2004 by The American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 59 (2004)
    Issue (Month): 5 (October)
    Pages: 2041-2060

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    Handle: RePEc:bla:jfinan:v:59:y:2004:i:5:p:2041-2060

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    Cited by:
    1. Matthew Hill & Kathleen Fuller & G. Kelly & Jim Washam, 2014. "Corporate cash holdings and political connections," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 123-142, January.
    2. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(3), pages 599-634, March.
    3. Nicole Boyson & Robert Mooradian, 2011. "Corporate governance and hedge fund activism," Review of Derivatives Research, Springer, vol. 14(2), pages 169-204, July.
    4. Schauten, M.B.J. & van Dijk, D.J.C. & van der Waal, J-P., 2008. "Corporate Governance and the Value of Excess Cash Holdings of Large European Firms," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2008-027-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    5. Najah Attig & Sadok El Ghoul & Omrane Guedhami & Sorin Rizeanu, 2013. "The governance role of multiple large shareholders: evidence from the valuation of cash holdings," Journal of Management and Governance, Springer, vol. 17(2), pages 419-451, May.
    6. Orens, Raf & Reheul, Anne-Mie, 2011. "Do CEO Demographics Explain Cash Holdings in SMEs?," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2011/35, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    7. Boubaker, Sabri & Cellier, Alexis & Rouatbi, Wael, 2014. "The sources of shareholder wealth gains from going private transactions: The role of controlling shareholders," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 226-246.
    8. Faleye, Olubunmi, 2007. "Classified boards, firm value, and managerial entrenchment," Journal of Financial Economics, Elsevier, Elsevier, vol. 83(2), pages 501-529, February.
    9. Harford, Jarrad & Mansi, Sattar A. & Maxwell, William F., 2008. "Corporate governance and firm cash holdings in the US," Journal of Financial Economics, Elsevier, Elsevier, vol. 87(3), pages 535-555, March.

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