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Organization Capital and Corporate Governance

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  • Jaeseong Lim

    (E. Craig Wall Sr. College of Business Administration, Coastal Carolina University, Conway, SC 29528, USA)

Abstract

Management with high organization capital, which can be seen as an indicator of superior internal governance, can be expected to exhibit a preference for cash reserves to safeguard assets and mitigate the risk of underinvestment. However, external parties may see high cash reserves as a risk factor for the agency problem. Strong external governance can mitigate the preference of management with high organization capital for cash reserves. The empirical analyses show a positive association between the organization capital of U.S.-listed firms and their cash reserves when controlling for multiple variables. Furthermore, through employing the hostile takeover threat index, I reveal the disciplinary effects of strong external governance. This study adds to the existing literature investigating corporate governance that is useful in corporate decision making.

Suggested Citation

  • Jaeseong Lim, 2023. "Organization Capital and Corporate Governance," JRFM, MDPI, vol. 16(9), pages 1-14, August.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:384-:d:1227315
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    References listed on IDEAS

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