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Does employees' interest matter more than shareholders’ interest in determining cash management policy?

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  • Gupta, Kartick
  • Krishnamurti, Chandra

Abstract

Extant literature suggests that firms that follow good corporate governance (CG) practices maintain lower cash holdings. Another strand of literature suggests that employee-friendly firms maintain higher cash holdings. The negative relationship between CG practices and cash holding, and the positive relationship between employee-friendly practices and cash holding raises question as to whether firms should undertake shareholder or stakeholder-friendly policies. Our study finds that the cash holdings are negatively related to employee-friendly practices. We also find that good CG practices are negatively related to cash holdings. Cross-country evidence suggests that employee-friendly firms affect cash holdings primarily when countries follow strong labour laws and regulations, suggesting that benefits provided at the country-level complement the benefits provided by the firm.

Suggested Citation

  • Gupta, Kartick & Krishnamurti, Chandra, 2023. "Does employees' interest matter more than shareholders’ interest in determining cash management policy?," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 568-589.
    • Handle: RePEc:eee:reveco:v:84:y:2023:i:c:p:568-589
    DOI: 10.1016/j.iref.2022.11.020
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    More about this item

    Keywords

    Employee welfare; Corporate governance; Cash holding; Country-level attributes;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy

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