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Determinants of corporate cash policy: Insights from private firms

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  • Gao, Huasheng
  • Harford, Jarrad
  • Li, Kai
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    Abstract

    We provide one of the first large sample comparisons of cash policies in public and private U.S. firms. We first show that despite higher financing frictions, private firms hold, on average, about half as much cash as public firms do. By examining the drivers of cash policies for each group, we are able to attribute the difference to the much higher agency costs in public firms. By combining evidence from across public and private firms as well as within public firms across different qualities of governance, we are able to reconcile existing mixed evidence on the effects of agency problems on cash policies. Specifically, agency problems affect not only the target level of cash, but also how managers react to cash in excess of the target.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 109 (2013)
    Issue (Month): 3 ()
    Pages: 623-639

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    Handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:623-639

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Cash holdings; Financing frictions; Agency conflicts; Private firms; Excess cash; Speed of adjustment;

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    References

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    Cited by:
    1. Kim Huynh & Teodora Paligorova & Robert Petrunia, 2013. "Public/Private Transitions and Firm Financing," Working Papers 13-36, Bank of Canada.
    2. Viral V. Acharya & Zhaoxia Xu, 2013. "Financial Dependence and Innovation: The Case of Public versus Private Firms," NBER Working Papers 19708, National Bureau of Economic Research, Inc.
    3. Almeida, Heitor & Campello, Murillo & Cunha, Igor & Weisbach, Michael S., 2013. "Corporate Liquidity Management: A Conceptual Framework and Survey," Working Paper Series 2013-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Makaew, Tanakorn & Maksimovic, Vojislav, 2013. "Industry Shocks, Operating Risk, and Corporate Financial Policies around the World," MPRA Paper 53366, University Library of Munich, Germany.
    5. Subrahmanyam, Marti G. & Tang, Dragon Yongjun & Wang, Sarah Qian, 2014. "Credit default swaps and corporate cash holdings," CFS Working Paper Series 462, Center for Financial Studies (CFS).
    6. Jacob, Martin & Alstadsæter, Annette, 2013. "Payout policies of privately held firms: Flexibility and the role of income taxes," arqus Discussion Papers in Quantitative Tax Research 152, arqus - Arbeitskreis Quantitative Steuerlehre.

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