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Cash holdings, corporate governance and financial constraints

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Author Info

  • Edith Ginglinger

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

  • Khaoula Saddour

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

Abstract

We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00162404.

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Date of creation: 2007
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Handle: RePEc:hal:wpaper:halshs-00162404

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00162404/en/
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Related research

Keywords: cash holdings; financial constraints; governance;

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Cited by:
  1. Godfred A. Bokpin & Zangina Isshaq & Francis Aboagye-Otchere, 2011. "Ownership structure, corporate governance and corporate liquidity policy: Evidence from the Ghana Stock Exchange," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(3), pages 262-279, August.
  2. Belot, François, 2008. "Shareholder agreements and firm value: Evidence from French listed firms," Economics Papers from University Paris Dauphine 123456789/3031, Paris Dauphine University.

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