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Determinants And Marginal Value Of Corporate Cash Holdings: Financial Constraints Versus Corporate Governance

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  • Wenchien Liu

Abstract

Previous studies indicate that financial constraints and corporate governance are main factors affecting corporate cash holdings. This paper simultaneously examines the interactive influences of financial constraints and corporate governance on corporate cash holdings among publicly traded U.S. firms. We find that firms with good governance hold more cash than do firms with poor governance, regardless of financial constraints. Furthermore, the cash holdings of financially constrained firms with good corporate governance are the highest among all firm types in this study. The impact of corporate governance on firm value is statistically strong only among firms with financial constraints. Our results indicate that financial constraints are a more crucial determinant of corporate cash holdings than is corporate governance. These findings have implications that firms with financial constraints should pay more attention to keep optimal liquidity, especially avoiding the unnecessary waste due to agency problems

Suggested Citation

  • Wenchien Liu, 2018. "Determinants And Marginal Value Of Corporate Cash Holdings: Financial Constraints Versus Corporate Governance," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 12(1), pages 57-70.
    • Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:1:p:57-70
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    More about this item

    Keywords

    Corporate Cash Holdings; Corporate Governance; Financial Constraints;
    All these keywords.

    JEL classification:

    • 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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