Directorate interlocks and corporate cash holdings in emerging economies: Evidence from China

The large amount of cash that some corporations hold has recently come under public scrutiny. Prior research has used the agency cost framework to explain why managers prefer large corporate cash holdings. Using a novel and intuitive approach, the resource-dependence perspective, we document that directorate interlocks, in terms of network centrality and structural holes that enable firms to have access to resources, affects firms’ cash holdings. Specifically, the directorate interlocks facilitate firms to have bank loans that substitute for cash holdings. We further show that political connection by the firm’s leader amplifies the directorate interlocks’ effect to reduce cash holding.