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Quality of Governance and the Market Value of Cash: Evidence from Spain

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  • Eloisa Perez-de Toledo
  • Evandro Bocatto

Abstract

We examine the value shareholders attribute to one euro of extra cash held by Spanish firms and how corporate governance impacts this value by comparing the value of cash for companies with good and poor governance. The results show that one euro of extra cash is valued at a considerable premium at companies with good governance. Moreover, the presence of future growth opportunities intensifies this effect. Our results also suggest that the conflict between shareholders and debt holders is more severe in Spain than in the U.S. as investors apply a stronger discount for leverage when valuing Spanish firms.

Suggested Citation

  • Eloisa Perez-de Toledo & Evandro Bocatto, 2013. "Quality of Governance and the Market Value of Cash: Evidence from Spain," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(2), pages 91-104.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:2:p:91-104
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    References listed on IDEAS

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    More about this item

    Keywords

    Corporate Governance; Cash Holdings; Firm Value; Future Growth Opportunities; Leverage;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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