A Note on Stakeholder Theory and Risk: Implications for Corporate Cash Holdings and Dividend Policy
According to Zingales (1999), corporate governance is defined as the complex set of constraints that shape the ex-post bargaining over the quasi-rents generated by a fim. This paper argues that corporate cash holdings and dividend policy can be used as soft constraints in this regard in order to mitigate the holdup situation of corporate stakeholders and to enhance incentives for firm-specific investments in the face of high total firm risk. Hence stakehloder theory contributes to answering the question why firms choose conservative financial policies.
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