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Blockholder exit threats and corporate cash holdings

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  • Lingna Sun
  • Hieu V. Phan
  • Thuy Simpson

Abstract

We investigate the effects of blockholder exit threats, which increase with stock liquidity, on corporate cash holdings and the value of cash to shareholders. Exploiting decimalization as an exogenous shock to stock liquidity to identify the effects of blockholder exit threats, we find robust evidence that blockholder exit threats have a negative effect on corporate cash holdings and a positive effect on the value of cash to shareholders. Further analysis indicates that exit threat induces firms to increase stock repurchases and improve investment efficiency. Our evidence is consistent with the view that blockholder exit threats are an effective corporate governance mechanism.

Suggested Citation

  • Lingna Sun & Hieu V. Phan & Thuy Simpson, 2021. "Blockholder exit threats and corporate cash holdings," The Financial Review, Eastern Finance Association, vol. 56(4), pages 821-843, November.
    • Handle: RePEc:bla:finrev:v:56:y:2021:i:4:p:821-843
    DOI: 10.1111/fire.12278
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    Cited by:

    1. Yi Jiang & Tingting Que & Miaomiao Yu, 2022. "Price asymmetries in the US airline industry," The Financial Review, Eastern Finance Association, vol. 57(4), pages 793-814, November.
    2. Thuy Bui, 2022. "Corporate blockholders and financial leverage," The Financial Review, Eastern Finance Association, vol. 57(3), pages 559-583, August.
    3. Bingrun Xu & Wenli Huang & Lu Li & Lei Lu, 2023. "Mutual fund activism and corporate innovation: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S2), pages 2755-2779, June.

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