IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v53y2019i3d10.1007_s11156-018-0762-1.html
   My bibliography  Save this article

Multiple directorships and the value of cash holdings

Author

Listed:
  • Ting-Kai Chou

    (National Cheng Kung University)

  • Hsuan-Ling Feng

    (Tzu Chi University of Science and Technology)

Abstract

This study examines the impact of multiple directorships on the value destruction associated with increases in cash holdings. We find that the marginal value of cash increases with multiple directorships. Furthermore, the positive relationship between cash value and multiple directorships is more pronounced for firms with higher managerial agency problems. Additional analyses suggest that multi-board directors limit a firm’s holdings of excess cash, and especially directors having current industry affiliations have better ability to perform their monitoring function. Firms with multi-board directors make better cash acquisitions. Multiple directorships improve subsequent operating performance associated with capital expenditures and R&D investments. When firms have limited investment opportunities, multiple directorships result in more dividend payouts of cash. Collectively, our results suggest that multiple directorships are associated with a more efficient use of cash, thereby providing direct benefits to shareholders.

Suggested Citation

  • Ting-Kai Chou & Hsuan-Ling Feng, 2019. "Multiple directorships and the value of cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 53(3), pages 663-699, October.
    • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:3:d:10.1007_s11156-018-0762-1
    DOI: 10.1007/s11156-018-0762-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11156-018-0762-1
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-018-0762-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Drobetz, Wolfgang & Grüninger, Matthias C. & Hirschvogl, Simone, 2010. "Information asymmetry and the value of cash," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2168-2184, September.
    2. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1111, June.
    3. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. "Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March.
    4. Renée Birgit Adams & Renée Birgit Adams & Daniel Ferreira, 2012. "Regulatory Pressure and Bank Directors’ Incentives to Attend Board Meetings," International Review of Finance, International Review of Finance Ltd., vol. 12(2), pages 227-248, June.
    5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    6. Malcolm Baker & Jeremy C. Stein & Jeffrey Wurgler, 2003. "When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 969-1005.
    7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    8. Tong, Zhenxu, 2011. "Firm diversification and the value of corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 741-758, June.
    9. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    10. Sarkar, Jayati & Sarkar, Subrata, 2009. "Multiple board appointments and firm performance in emerging economies: Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 271-293, April.
    11. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    12. Mai Iskandar-Datta & Yonghong Jia, 2014. "Investor protection and corporate cash holdings around the world: new evidence," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 245-273, August.
    13. Lucian Bebchuk & Alma Cohen & Allen Ferrell, 2009. "What Matters in Corporate Governance?," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 783-827, February.
    14. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 733-771.
    15. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    16. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    17. Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
    18. Anzhela Knyazeva & Diana Knyazeva & Ronald W. Masulis, 2013. "The Supply of Corporate Directors and Board Independence," Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1561-1605.
    19. Jacob Boudoukh & Roni Michaely & Matthew Richardson & Michael R. Roberts, 2007. "On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing," Journal of Finance, American Finance Association, vol. 62(2), pages 877-915, April.
    20. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, June.
    21. Eliezer M. Fich & Anil Shivdasani, 2006. "Are Busy Boards Effective Monitors?," Journal of Finance, American Finance Association, vol. 61(2), pages 689-724, April.
    22. Kothari, S. P. & Sabino, Jowell S. & Zach, Tzachi, 2005. "Implications of survival and data trimming for tests of market efficiency," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 129-161, February.
    23. Jiraporn, Pornsit & Kim, Young Sang & Davidson III, Wallace N., 2008. "Multiple directorships and corporate diversification," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 418-435, June.
    24. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
    25. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 107-156.
    26. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    27. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    28. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    29. Ahn, Seoungpil & Jiraporn, Pornsit & Kim, Young Sang, 2010. "Multiple directorships and acquirer returns," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2011-2026, September.
    30. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
    31. Brick, Ivan E. & Chidambaran, N.K., 2010. "Board meetings, committee structure, and firm value," Journal of Corporate Finance, Elsevier, vol. 16(4), pages 533-553, September.
    32. Jarrad Harford & Sattar A. Mansi & William F. Maxwell, 2012. "Corporate Governance and Firm Cash Holdings in the U.S," Springer Books, in: Sabri Boubaker & Bang Dang Nguyen & Duc Khuong Nguyen (ed.), Corporate Governance, edition 127, pages 107-138, Springer.
    33. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    34. David J. Denis & Diane K. Denis & Mark D. Walker, 2015. "CEO Assessment and the Structure of Newly Formed Boards," Review of Financial Studies, Society for Financial Studies, vol. 28(12), pages 3338-3366.
    35. David J. Denis & Valeriy Sibilkov, 2010. "Financial Constraints, Investment, and the Value of Cash Holdings," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 247-269, January.
    36. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    37. Jiraporn, Pornsit & Singh, Manohar & Lee, Chun I., 2009. "Ineffective corporate governance: Director busyness and board committee memberships," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 819-828, May.
    38. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    39. Conyon, Martin J. & Read, Laura E., 2006. "A model of the supply of executives for outside directorships," Journal of Corporate Finance, Elsevier, vol. 12(3), pages 645-659, June.
    40. Claudio Loderer & Urs Peyer, 2002. "Board Overlap, Seat Accumulation and Share Prices," European Financial Management, European Financial Management Association, vol. 8(2), pages 165-192, June.
    41. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    42. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    43. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    44. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    45. Field, Laura & Lowry, Michelle & Mkrtchyan, Anahit, 2013. "Are busy boards detrimental?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 63-82.
    46. Tod Perry & Urs Peyer, 2005. "Board Seat Accumulation by Executives: A Shareholder's Perspective," Journal of Finance, American Finance Association, vol. 60(4), pages 2083-2123, August.
    47. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    48. Kin-Wai Lee & Cheng-Few Lee, 2009. "Cash Holdings, Corporate Governance Structure and Firm Valuation," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 475-508.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Madhur Bhatia & Rachita Gulati, 2022. "Are boards ‘substitute’ or ‘complement’ dividend payout? Econometric evidence for Indian banks," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(2), July.
    2. Alqahtani, Jubran & Duong, Lien & Taylor, Grantley & Eulaiwi, Baban, 2022. "Outside directors, firm life cycle, corporate financial decisions and firm performance," Emerging Markets Review, Elsevier, vol. 50(C).
    3. Vu Quang Trinh & Marwa Elnahass & Aly Salama, 2021. "Board busyness and new insights into alternative bank dividends models," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1289-1328, May.
    4. Xinyu Yu & Ping Wang, 2020. "Government control and the value of cash: evidence from listed firms in China," Review of Quantitative Finance and Accounting, Springer, vol. 55(4), pages 1341-1369, November.
    5. Shehub Bin Hasan & Md Samsul Alam & Sudharshan Reddy Paramati & Md Shahidul Islam, 2022. "Does firm-level political risk affect cash holdings?," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 311-337, July.
    6. Li, Mengzhe & Lan, Fei, 2022. "Former CEO directors and cash holdings," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 320-334.
    7. Suman Lodh & Monomita Nandy & Jaskaran Kaur, 2023. "Influence of governance bundles and directors' social capital on cash holding in foreign cross‐listed firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4271-4298, October.
    8. Hidaya Lawati & Khaled Hussainey & Roza Sagitova, 2021. "Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?," Review of Quantitative Finance and Accounting, Springer, vol. 57(2), pages 557-594, August.
    9. Efstathios Magerakis & Ahsan Habib, 2022. "Environmental uncertainty and corporate cash holdings: The moderating role of CEO ability," International Review of Finance, International Review of Finance Ltd., vol. 22(3), pages 402-432, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Drobetz, Wolfgang & von Meyerinck, Felix & Oesch, David & Schmid, Markus, 2014. "Board Industry Experience, Firm Value, and Investment Behavior," Working Papers on Finance 1401, University of St. Gallen, School of Finance, revised Dec 2015.
    2. Pinghsun Huang & Yi-Chieh Wen & Yan Zhang, 2020. "Does the monitoring effect of Big 4 audit firms really prevail? Evidence from managerial expropriation of cash assets," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 739-768, August.
    3. Chowdhury, Rajib & Doukas, John A. & Park, Jong Chool, 2021. "Stakeholder orientation and the value of cash holdings: Evidence from a natural experiment," Journal of Corporate Finance, Elsevier, vol. 69(C).
    4. Hsuan-Chu Lin & She-Chih Chiu, 2017. "Tradeoff on corporate cash holdings: a theoretical and empirical analysis," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 727-763, October.
    5. Chen, Li-Yu & Lai, Jung-Ho & Chen, Carl R., 2015. "Multiple directorships and the performance of mergers & acquisitions," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 178-198.
    6. Sabri Boubaker & Imen Derouiche & Duc Nguyen, 2015. "Does the board of directors affect cash holdings? A study of French listed firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(2), pages 341-370, May.
    7. Bradley Benson & Travis Davidson & Hui James & Hongxia Wang, 2022. "Board busyness and corporate payout: are all busy directors the same?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3711-3759, September.
    8. Audrey Wenhsin Hsu & Sophia Hsintsai Liu, 2018. "Parent-subsidiary investment layers and the value of corporate cash holdings," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 651-681, October.
    9. Huang, Pinghsun & Guo, Jun & Ma, Tongshu & Zhang, Yan, 2015. "Does the value of cash holdings deteriorate or improve with material weaknesses in internal control over financial reporting?," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 30-45.
    10. Sheeba Kapil & Rakesh K Mishra, 2019. "Corporate Governance structure and firm performance in Indian context: A Structural Equation Modelling Approach," Working Papers 1937, Indian Institute of Foreign Trade.
    11. Kathy Fogel & Liping Ma & Randall Morck, 2021. "Powerful independent directors," Financial Management, Financial Management Association International, vol. 50(4), pages 935-983, December.
    12. Chang, Che-Chia & Kao, Li-Han & Chen, Hsin-Yu, 2018. "How does real earnings management affect the value of cash holdings? Comparisons between information and agency perspectives," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 47-64.
    13. Gao, Ning & Mohamed, Abdulkadir, 2018. "Cash-rich acquirers do not always make bad acquisitions: New evidence," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 243-264.
    14. Jiaxing You & Ling Lin & Juanjuan Huang & Min Xiao, 2020. "When is cash king? International evidence on the value of cash across the business cycle," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 1101-1131, April.
    15. Ernie Hendrawaty, 2019. "Value of Excess Cash Holdings of Financially Unconstrained Companies," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(3), September.
    16. Stavros E. Arvanitis & Theodoros V. Stamatopoulos & Dimitris Terzakis, 2018. "Is There a Non-linear Relationship of Market Value with Cash and Ownership?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 3-25, January-M.
    17. Samuel Jebaraj Benjamin, 2019. "The Effect of Financial Constraints on Audit Fees," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 59-87.
    18. Volonté, Christophe, 2015. "Boards: Independent and committed directors?," International Review of Law and Economics, Elsevier, vol. 41(C), pages 25-37.
    19. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    20. Ahn, Seoungpil & Jiraporn, Pornsit & Kim, Young Sang, 2010. "Multiple directorships and acquirer returns," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2011-2026, September.

    More about this item

    Keywords

    Multiple directorships; Cash holdings; Agency costs; Market value;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:rqfnac:v:53:y:2019:i:3:d:10.1007_s11156-018-0762-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.