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Governance, product market competition and cash management in IPO firms

Author

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  • Jain, Bharat A.
  • Li, Joanne
  • Shao, Yingying

Abstract

This study evaluates the link between CEO governance heterogeneity, power structure of the firm, and product market competition on various facets of post-IPO cash policy. Our results suggest that post-IPO cash holdings as well as marginal value of cash reserves are higher under a founder CEO governance regime relative to non-founder CEOs. Concentrating board power in the hands of founder CEOs however, reduces their ability to maintain higher post-IPO cash reserves. Our results also suggest that product market competition influences both the level and marginal value of cash reserves in the hands of founder CEOs. Further, we find that stronger internal governance reduces the tendency of IPO firms to deploy excess cash reserves to fund internal investments in excess of industry rivals. Finally, our results suggest that excess cash reserves in competitive industry environments lead to superior post-IPO operating performance.

Suggested Citation

  • Jain, Bharat A. & Li, Joanne & Shao, Yingying, 2013. "Governance, product market competition and cash management in IPO firms," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 2052-2068.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:2052-2068
    DOI: 10.1016/j.jbankfin.2013.01.032
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    More about this item

    Keywords

    Cash management; Product market competition; IPOs; Governance; Power structure of the firm;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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