IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v69y2024ipbs1544612324012406.html

Litigation risk and corporate cash holdings: The moderating effect of CEO tenure

Author

Listed:
  • Liu, Lei

Abstract

Cash holdings represent a crucial decision that can affect the efficiency of a firm's cash usage and, ultimately, shareholder value. Taking advantage of a comprehensive sample of China's A-share listed companies from 2012 to 2022, this research examines the relationship between litigation risk and corporate cash holdings. In line with the precautionary motive, we discover robust evidence that litigation risk is positively correlated with corporate cash holdings. Moreover, we document that the positive relationship is more pronounced for firms with long-tenured CEOs, as they are more risk averse. Our findings are robust to a series of sensitivity analyzes. Overall, this study contributes to the literature on litigation risk and corporate cash holdings, and generates valuable practical implications for investors, managers, and policymakers.

Suggested Citation

  • Liu, Lei, 2024. "Litigation risk and corporate cash holdings: The moderating effect of CEO tenure," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012406
    DOI: 10.1016/j.frl.2024.106211
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324012406
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.106211?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

    for a different version of it.

    References listed on IDEAS

    as
    1. Hisham Farag & Chris Mallin, 2016. "The Impact of the Dual Board Structure and Board Diversity: Evidence from Chinese Initial Public Offerings (IPOs)," Journal of Business Ethics, Springer, vol. 139(2), pages 333-349, December.
    2. Wang, Ziyuan & Zhang, Cong & Wu, Ran & Sha, Lina, 2024. "From ethics to efficiency: Understanding the interconnected dynamics of ESG performance, financial efficiency, and cash holdings in China," Finance Research Letters, Elsevier, vol. 64(C).
    3. Xiong, Lingyun & Deng, Hui & Xiao, Lijuan, 2021. "Does stock market liberalization mitigate litigation risk? Evidence from Stock Connect in China," Economic Modelling, Elsevier, vol. 102(C).
    4. Chakraborty, Atreya & Sheikh, Shahbaz & Subramanian, Narayanan, 2007. "Termination risk and managerial risk taking," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 170-188, March.
    5. Qi, Bao & Fang, Peijie, 2023. "Dynamic changes in corporate financialization during CEO tenure," Finance Research Letters, Elsevier, vol. 58(PB).
    6. Atreya Chakraborty & Lucia S. Gao & Prianka Musa, 2023. "Corporate social responsibility and litigation risk: Evidence from securities class action lawsuits," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 1785-1819, June.
    7. 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.
    8. Hassan, M. Kabir & Houston, Reza & Karim, M. Sydul, 2021. "Courting innovation: The effects of litigation risk on corporate innovation," Journal of Corporate Finance, Elsevier, vol. 71(C).
    9. Sun, Wenyi & Yin, Chao & Zeng, Yeqin, 2023. "Precautionary motive or private benefit motive for holding cash: Evidence from CEO ownership," International Review of Financial Analysis, Elsevier, vol. 90(C).
    10. Qin, Jiaqi & Yang, Xue & He, Qing & Sun, Lingxia, 2021. "Litigation risk and cost of capital: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    11. Zhiyan Cao & Ganapathi S. Narayanamoorthy, 2011. "The Effect of Litigation Risk on Management Earnings Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 28(1), pages 125-173, March.
    12. Hou, Canran & Liu, Huan, 2020. "Foreign residency rights and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    13. Zhou, Bing & Dutta, Shantanu & Zhu, Pengcheng, 2020. "CEO tenure and mergers and acquisitions," Finance Research Letters, Elsevier, vol. 34(C).
    14. Liu, Xiaoge & Miao, Miao & Liu, Ruiming, 2020. "Litigation and corporate risk taking: Evidence from Chinese listed firms," International Review of Law and Economics, Elsevier, vol. 61(C).
    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. Cui, Yang & Zhang, Yanliang, 2025. "Financial stability strategies: Bankruptcy courts and corporate capital structure adjustment," International Review of Economics & Finance, Elsevier, vol. 99(C).
    2. Martin Pavlik & Grzegorz Michalski, 2025. "Monte Carlo Simulations for Resolving Verifiability Paradoxes in Forecast Risk Management and Corporate Treasury Applications," IJFS, MDPI, vol. 13(2), pages 1-38, April.

    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. Iftikhar, Kainat & Bagh, Tanveer & Shabbir, Muhammad Nadir, 2025. "The dichotomy of corporate litigation risk in shaping ESG disclosure: Does green innovation matter?," Research in International Business and Finance, Elsevier, vol. 75(C).
    2. Chen, Xuchang & Wu, Changqi & Xie, Xuanli, 2025. "Foreign ownership and corporate litigation risk," Journal of Business Research, Elsevier, vol. 189(C).
    3. Li, Zhi & Liu, Yue & Huang, Wenxuan, 2024. "Capital structure and corporate litigation," International Review of Economics & Finance, Elsevier, vol. 95(C).
    4. Elamer, Ahmed A. & Utham, Vinay, 2024. "Cash is queen? Impact of gender-diverse boards on firms' cash holdings during COVID-19," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    5. Ma, Chunguang & Feng, Shunfei & Huang, Wenhui & Chen, Aoyun, 2025. "Political corruption and corporate tax avoidance: A quasi-natural experiment," International Review of Financial Analysis, Elsevier, vol. 99(C).
    6. Barry Oliver & Chuyi Yang & Lei Zhang, 2025. "On the persistence of law firm performance in securities class action lawsuits," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(3), pages 2544-2588, September.
    7. Deng, Lixing & Lai, Shaojie & Liu, Shiang & Pu, Xiaoling, 2022. "Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China," Economic Modelling, Elsevier, vol. 114(C).
    8. Wang, Qing Sophie & Chen, Lihan & Lai, Shaojie & Anderson, Hamish D., 2024. "Judicial reform and corporate cash holdings: Evidence from the establishment of circuit courts in China," Journal of Behavioral and Experimental Finance, Elsevier, vol. 43(C).
    9. Minyu Zheng & Normaziah Mohd Nor & Zariyawati Mohd Ashhari, 2025. "Exacerbate or alleviate? Impact of economic policy uncertainty on excess cash holdings," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-15, December.
    10. Guo, Heng, 2023. "Enterprise litigation risk and risk taking," Finance Research Letters, Elsevier, vol. 58(PA).
    11. 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.
    12. Wang, Muyun & Zhang, Ying, 2024. "Excess goodwill and enterprise litigation risk," Finance Research Letters, Elsevier, vol. 67(PB).
    13. Li, Haili & Huang, Wei & Shen, Zhe & Xia, Qing, 2025. "Regulatory enforcement of minority shareholder rights and corporate cash holdings," Research in International Business and Finance, Elsevier, vol. 79(C).
    14. Bu, Jun & Fei, Tianlun & Zhou, Futong, 2024. "United we stand, divided we fall: The impact of top management team stability on corporate litigation," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    15. Kainat Iftikhar & Can Yang & Tanveer Bagh, 2026. "Litigation risk and corporate reputation in emerging market: the role of green innovation," Risk Management, Palgrave Macmillan, vol. 28(1), pages 1-41, February.
    16. Zhang, Guanglong & Wang, Chuyu, 2025. "Local government debt and corporate cash holdings: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).
    17. Leonard Leye Li & Gary S. Monroe & Jeff Coulton, 2023. "Managerial litigation risk and corporate investment efficiency: Evidence from universal demand laws," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 20(1), pages 196-232, March.
    18. Yiwei Li & Wei Song & Tingyu Sun & Qingjing Zhang, 2023. "The impact of shareholder litigation risk on income smoothing," Review of Quantitative Finance and Accounting, Springer, vol. 61(4), pages 1379-1413, November.
    19. Wang, Li & Wu, Yiqi & Chen, Yaxin & Dai, Yunhao, 2023. "Distance produces the fear of loss: Customer geographic proximity and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 87(C).
    20. Lai, Jieji & Hu, Shiyang, 2024. "Bankruptcy judicial system reform and corporate financial litigation risk: A quasi-natural experiment in China," Finance Research Letters, Elsevier, vol. 62(PB).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    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:eee:finlet:v:69:y:2024:i:pb:s1544612324012406. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    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.