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Two heads better than one? Strategic alliance and firms excess cash holdings

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  • Chen, Wenrui
  • Liu, Xinghe
  • Hong, Yun

Abstract

Based on elaborated manually collected strategic alliance data on all Chinese listed companies from 2007 to 2020, we document that alliance membership is positively associated with future excess cash holdings. Compared with non-allied firms, alliance membership increases excess cash holdings by an average of RMB 128.86 million (or US$ 19.95 million). Cross-sectional tests show that this positive relationship is more pronounced among firms with more severe manager–shareholder agency problems, but weakened among those with better corporate governance and an improved institutional environment. We further find that foreign alliance partners trigger more excess cash holding, and that allied firms mainly increase their cash holdings by obtaining external equity and debt finance cash. Finally, we find that internal interests exploiting motivation entice managers to hold excess cash in the strategic alliances.

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  • Chen, Wenrui & Liu, Xinghe & Hong, Yun, 2023. "Two heads better than one? Strategic alliance and firms excess cash holdings," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007516
    DOI: 10.1016/j.frl.2022.103575
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    Cited by:

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    More about this item

    Keywords

    Strategic alliance; Excess cash holdings; Informal contract; Corporate governance;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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