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Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis

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  • LEE PINKOWITZ
  • RENÉ STULZ
  • ROHAN WILLIAMSON

Abstract

Agency theories predict that the value of corporate cash holdings is less in countries with poor investor protection because of the greater ability of controlling shareholders to extract private benefits from cash holdings in such countries. Using various specifications of the valuation regressions of Fama and French (1998), we find that the relation between cash holdings and firm value is much weaker in countries with poor investor protection than in other countries. In further support of the importance of agency theories, the relation between dividends and firm value is weaker in countries with stronger investor protection.

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  • Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
    • Handle: RePEc:bla:jfinan:v:61:y:2006:i:6:p:2725-2751
    DOI: 10.1111/j.1540-6261.2006.01003.x
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