IDEAS home Printed from https://ideas.repec.org/a/sae/sagope/v9y2019i4p2158244019894293.html
   My bibliography  Save this article

Corporate Governance, Ultimate Owner, and Target Cash Holdings: Evidence From China

Author

Listed:
  • Khalil Jebran
  • Shihua Chen
  • Muhammad Zubair Tauni
  • Hassan Ahmad

Abstract

This study investigates the influence of corporate governance and the nature of the ultimate owner on the adjustment behavior of corporate cash holdings. This study uses a sample of Chinese listed firms over the period 2003–2016 and opts difference- and system-GMM (generalized method of moments) models to explore the target cash holdings of Chinese firms. The results demonstrate that Chinese firms have target cash holdings and that the cash holdings adjustment behavior varies across the state-owned enterprises and nonstate-owned enterprises. Finally, the results show that cash holdings adjustment rate varies across normal and crisis period. This study adds to the existing literature by showing how corporate governance attributes and the nature of ownership can impact the cash holdings. Finally, this study provides insights that the cash holdings adjustment varies in normal and a crisis period.

Suggested Citation

  • Khalil Jebran & Shihua Chen & Muhammad Zubair Tauni & Hassan Ahmad, 2019. "Corporate Governance, Ultimate Owner, and Target Cash Holdings: Evidence From China," SAGE Open, , vol. 9(4), pages 21582440198, December.
    • Handle: RePEc:sae:sagope:v:9:y:2019:i:4:p:2158244019894293
    DOI: 10.1177/2158244019894293
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/2158244019894293
    Download Restriction: no
    File URL: https://libkey.io/10.1177/2158244019894293?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
    ---><---

    References listed on IDEAS

    as
    1. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    2. 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.
    3. Jebran, Khalil & Chen, Shihua & Tauni, Muhammad Zubair, 2019. "Principal-principal conflicts and corporate cash holdings: Evidence from China," Research in International Business and Finance, Elsevier, vol. 49(C), pages 55-70.
    4. Kim, Kong-Hee & Al-Shammari, Hussam A. & Kim, Bongjin & Lee, Seung-Hyun, 2009. "CEO duality leadership and corporate diversification behavior," Journal of Business Research, Elsevier, vol. 62(11), pages 1173-1180, November.
    5. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September.
    6. Kusnadi, Yuanto, 2011. "Do corporate governance mechanisms matter for cash holdings and firm value?," Pacific-Basin Finance Journal, Elsevier, vol. 19(5), pages 554-570, November.
    7. 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.
    8. Habib, Ahsan & Hasan, Mostafa Monzur, 2017. "Social capital and corporate cash holdings," International Review of Economics & Finance, Elsevier, vol. 52(C), pages 1-20.
    9. 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.
    10. Itzkowitz, Jennifer, 2013. "Customers and cash: How relationships affect suppliers' cash holdings," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 159-180.
    11. Khalil Jebran & Amjad Iqbal & Kalim Ullah Bhat & Muhammad Arif Khan & Mustansar Hayat, 2019. "Determinants of corporate cash holdings in tranquil and turbulent period: evidence from an emerging economy," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-12, December.
    12. 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.
    13. Gul, Ferdinand A. & Leung, Sidney, 2004. "Board leadership, outside directors' expertise and voluntary corporate disclosures," Journal of Accounting and Public Policy, Elsevier, vol. 23(5), pages 351-379.
    14. Yenn‐Ru Chen, 2008. "Corporate Governance and Cash Holdings: Listed New Economy versus Old Economy Firms," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(5), pages 430-442, September.
    15. Habib, Ahsan & Monzur Hasan, Mostafa & Al-Hadi, Ahmed, 2017. "Financial statement comparability and corporate cash holdings," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(3), pages 304-321.
    16. Kusnadi, Yuanto & Yang, Zhifeng & Zhou, Yuxiao, 2015. "Institutional development, state ownership, and corporate cash holdings: Evidence from China," Journal of Business Research, Elsevier, vol. 68(2), pages 351-359.
    17. Basil Al‐Najjar & Yacine Belghitar, 2011. "Corporate cash holdings and dividend payments: evidence from simultaneous analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32(4), pages 231-241, June.
    18. Guney, Yilmaz & Ozkan, Aydin & Ozkan, Neslihan, 2007. "International evidence on the non-linear impact of leverage on corporate cash holdings," Journal of Multinational Financial Management, Elsevier, vol. 17(1), pages 45-60, February.
    19. Godfred A. Bokpin, 2011. "Ownership structure, corporate governance and dividend performance on the Ghana Stock Exchange," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 12(1), pages 61-73, May.
    20. 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.
    21. Kuan, Tsung-Han & Li, Chu-Shiu & Liu, Chwen-Chi, 2012. "Corporate governance and cash holdings: A quantile regression approach," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 303-314.
    22. Guofu Tan & Justin Yifu Lin, 1999. "Policy Burdens, Accountability, and the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 426-431, May.
    23. Berger, Philip G & Ofek, Eli & Yermack, David L, 1997. "Managerial Entrenchment and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 52(4), pages 1411-1438, September.
    24. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
    25. 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.
    26. Huey-Ling Shiau & Yung-Ho Chang & Yi-Jing Yang, 2018. "The Cash Holdings and Corporate Investment Surrounding Financial Crisis: The Cases of China and Taiwan," Chinese Economy, Taylor & Francis Journals, vol. 51(2), pages 175-207, March.
    27. 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.
    28. 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.
    29. Yujun Lian & Mohamad Sepehri & Maggie Foley, 2011. "Corporate Cash Holdings and Financial Crisis: An Empirical Study of Chinese Companies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 1(2), pages 112-124, December.
    30. Borokhovich, Kenneth A. & Parrino, Robert & Trapani, Teresa, 1996. "Outside Directors and CEO Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(3), pages 337-355, September.
    31. Ali Uyar & Cemil Kuzey, 2014. "Determinants of corporate cash holdings: evidence from the emerging market of Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 1035-1048, March.
    32. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    33. Miguel A. Ferreira & Antonio S. Vilela, 2004. "Why Do Firms Hold Cash? Evidence from EMU Countries," European Financial Management, European Financial Management Association, vol. 10(2), pages 295-319, June.
    34. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(3), pages 335-359, September.
    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. Muhammad Arif Khan & Meng Bin & Chunlin Wang & Hazrat Bilal & Arshad Ali Khan & Irfan Ullah & Amjad Iqbal & Mohib Ur Rahman, 2023. "Impact of R&D on Firm Performance: Do Ownership Structure and Product Market Competition Matter?," SAGE Open, , vol. 13(4), pages 21582440231, November.
    2. Abid Hussain & Beata Gavurova & Masood Ahmed & Muhammad Asif Khan & József Popp, 2023. "What Matters for Corporate Cash Holdings Board Governance, Financial Constraints, or Interactions?," SAGE Open, , vol. 13(4), pages 21582440231, November.
    3. Saleh F. A. Khatib & Dewi Fariha Abdullah & Ernie Hendrawaty & Ahmed A. Elamer, 2022. "A bibliometric analysis of cash holdings literature: current status, development, and agenda for future research," Management Review Quarterly, Springer, vol. 72(3), pages 707-744, September.
    4. Ayman Hassan Bazhair, 2023. "Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis," SAGE Open, , vol. 13(2), pages 21582440231, May.
    5. Feimei Liao & Jiaqing Zhang & Songqin Ye, 2023. "Can Equity Incentives Restrain Defensive Behaviors in Corporate Cash Holding Decisions?," SAGE Open, , vol. 13(3), pages 21582440231, August.

    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. Tahir Akhtar & Mohammad Ali Tareq & Kashif Rashid, 2021. "Chief Executive Officers’ monitoring, board effectiveness, managerial ownership, and cash holdings: evidence from ASEAN," Review of Managerial Science, Springer, vol. 15(8), pages 2193-2238, November.
    2. Sabeeh Ullah & Yasir Kamal, 2017. "Board Characteristics, Political Connections, and Corporate Cash Holdings: The Role of Firm Size and Political Regime," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 157-179, March.
    3. Abdul Rashid & Maryam Ashfaq, 2017. "Financial Constraints And Corporate Cash Holdings: An Empirical Analysis Using Firm Level Data," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-26, June.
    4. 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.
    5. KHAN, Asad & BIBI, Memoona & TANVEER, Sarfaraz, 2016. "The Impact Of Corporate Governance On Cash Holdings: A Comparative Study Of The Manufacturing And Service Industry," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 20(3), pages 40-79.
    6. Thi Tuyet Dao, Nhung & Guney, Yilmaz & Hudson, Robert, 2023. "Managerial overconfidence and corporate cash holdings: Evidence from primary and secondary data," Research in International Business and Finance, Elsevier, vol. 65(C).
    7. Tran, Quoc Trung, 2020. "Financial crisis, shareholder protection and cash holdings," Research in International Business and Finance, Elsevier, vol. 52(C).
    8. Al-Najjar, Basil & Clark, Ephraim, 2017. "Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 1-12.
    9. Jan Felix Weidemann, 2018. "A state-of-the-art review of corporate cash holding research," Journal of Business Economics, Springer, vol. 88(6), pages 765-797, August.
    10. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    11. Pascal Nguyen & Nahid Rahman, 2020. "Institutional ownership, cross‐shareholdings and corporate cash reserves in Japan," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 1175-1207, April.
    12. Belkhir, Mohamed & Boubaker, Sabri & Derouiche, Imen, 2014. "Control–ownership wedge, board of directors, and the value of excess cash," Economic Modelling, Elsevier, vol. 39(C), pages 110-122.
    13. Jebran, Khalil & Chen, Shihua & Tauni, Muhammad Zubair, 2019. "Principal-principal conflicts and corporate cash holdings: Evidence from China," Research in International Business and Finance, Elsevier, vol. 49(C), pages 55-70.
    14. Tahir Akhtar & Mohammad Ali Tareq & Kashif Rashid, 2023. "The role of shareholders and creditors' rights in affecting cash holdings and firm value: A recent evidence from ASEAN," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 929-961, January.
    15. Efstathios Magerakis & Konstantinos Gkillas & Athanasios Tsagkanos & Costas Siriopoulos, 2020. "Firm Size Does Matter: New Evidence on the Determinants of Cash Holdings," JRFM, MDPI, vol. 13(8), pages 1-35, July.
    16. Khalil Jebran & Amjad Iqbal & Kalim Ullah Bhat & Muhammad Arif Khan & Mustansar Hayat, 2019. "Determinants of corporate cash holdings in tranquil and turbulent period: evidence from an emerging economy," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-12, December.
    17. Al-Hadi, Ahmed & Eulaiwi, Baban & Al-Yahyaee, Khamis Hamed & Duong, Lien & Taylor, Grantley, 2020. "Investment committees and corporate cash holdings," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    18. Phung Anh Thu & Nguyen Vinh Khuong, 2018. "Factors Effect on Corporate Cash Holdings of the Energy Enterprises Listed on Vietnam s Stock Market," International Journal of Energy Economics and Policy, Econjournals, vol. 8(5), pages 29-34.
    19. Cuong Nguyen Thanh, 2019. "Optimal Cash Holding Ratio for Non-Financial Firms in Vietnam Stock Exchange Market," JRFM, MDPI, vol. 12(2), pages 1-13, June.
    20. Gaio, Cristina & Gonçalves, Tiago & Venâncio, Ana, 2022. "Cash holdings in start-ups: The role of founder sociodemographic characteristics," Journal of Business Research, Elsevier, vol. 139(C), pages 520-528.

    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:sae:sagope:v:9:y:2019:i:4:p:2158244019894293. 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: SAGE Publications (email available below). General contact details of provider: .

    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.