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Corporate Liquidity

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  • Dittmar, Amy
  • Mahrt-Smith, Jan
  • Servaes, Henri

Abstract

Agency problems are an important determinant of corporate liquidity. For a sample of more than 11,000 firms from 45 countries, we find that corporations in countries where shareholders rights are not well protected hold up to twice as much cash as corporations in countries with good shareholder protection. In addition, when shareholder protection is poor, factors that generally drive the need for liquidity, such as investment opportunities and asymmetric information, actually become less important. These results strengthen after controlling for capital market development. In fact, consistent with the importance of agency costs, we find that managers actually hold larger cash balances when capital markets are better developed. Our evidence indicates that investors in countries with poor shareholder protection cannot force managers to disgorge excessive cash balances.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3499.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3499

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Keywords: cash holdings; corporate liquidity; shareholder rights;

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References

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  1. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
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Citations

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Cited by:
  1. Heitor Almeida & Filippo Ippolito & Ander Perez & Viral Acharya, 2012. "Credit Lines as Monitored Liquidity Insurance: Theory and Evidence," 2012 Meeting Papers 823, Society for Economic Dynamics.
  2. Murillo Campello & Heitor Almeida, 2010. "Aggregate Risk and the Choice Between Cash and Lines of Credit," 2010 Meeting Papers 1287, Society for Economic Dynamics.
  3. Kimie Harada & Pascal Nguyen, 2011. "Ownership concentration and dividend policy in Japan," Managerial Finance, Emerald Group Publishing, vol. 37(4), pages 362-379, April.
  4. Hetland, Ove Rein & Mjøs, Aksel, 2012. "Credit Shocks Harm the Unprepared - Financing Constraints and the Financial Crisis," Discussion Papers 2012/11, Department of Business and Management Science, Norwegian School of Economics.
  5. Roc Armenter & Viktoria Hnatkovska, 2011. "The macroeconomics of firms' savings," Working Papers 12-1, Federal Reserve Bank of Philadelphia.
  6. Jose M. Berrospide & Ralf R. Meisenzahl & Briana D. Sullivan, 2012. "Credit line use and availability in the financial crisis: the importance of hedging," Finance and Economics Discussion Series 2012-27, Board of Governors of the Federal Reserve System (U.S.).
  7. Humphery-Jenner, M., 2011. "Diversification in Private Equity Funds: On Knowledge-sharing, Risk-aversion and Limited-attention," Discussion Paper 2011-046, Tilburg University, Center for Economic Research.
  8. Nguyen, Pascal, 2012. "The impact of foreign investors on the risk-taking of Japanese firms," MPRA Paper 38991, University Library of Munich, Germany.
  9. W. Allard Bruinshoofd & Clemens J. M. Kool, 2004. "Dutch corporate liquidity mangement: New evidence on aggregation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 195-230, November.
  10. Tom Aabo & Marianna Andryeyeva Hansen & Christos Pantzalis, 2012. "Corporate foreign exchange speculation and integrated risk management," Managerial Finance, Emerald Group Publishing, vol. 38(8), pages 729-751, August.
  11. Mike Burkart & Konrad Raff, 2011. "Performance Pay, CEO Dismissal, and the Dual Role of Takeovers," FMG Discussion Papers dp694, Financial Markets Group.
  12. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2002. "Corporate Demand for Liquidity," NBER Working Papers 9253, National Bureau of Economic Research, Inc.
  13. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
  14. Filippo Ippolito & Ander Pérez Orive, 2012. "Credit lines: The other side of corporate liquidity," Economics Working Papers 1311, Department of Economics and Business, Universitat Pompeu Fabra.
  15. Filippo Ippolito & Ander Perez, 2012. "Credit Lines: The Other Side of Corporate Liquidity," Working Papers 618, Barcelona Graduate School of Economics.

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