IDEAS home Printed from https://ideas.repec.org/a/kap/rqfnac/v42y2014i1p123-142.html
   My bibliography  Save this article

Corporate cash holdings and political connections

Author

Listed:
  • Matthew Hill
  • Kathleen Fuller
  • G. Kelly
  • Jim Washam

Abstract

We examine the relation between corporate liquidity and political connections measured via lobbying expenditures. This is an interesting question as many of the motives for holding cash should be diminished by political connections. Results indicate a significant and inverse relation between cash levels and lobby expenses and that the marginal value of cash decreases with lobbying. Taken together, these findings suggest firms react optimally to the reduced benefits of cash linked to political connections and that the market recognizes the weakened benefits of cash. Overall, our research shows another way political connections can shape corporate policy. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Matthew Hill & Kathleen Fuller & G. Kelly & Jim Washam, 2014. "Corporate cash holdings and political connections," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 123-142, January.
    • Handle: RePEc:kap:rqfnac:v:42:y:2014:i:1:p:123-142
    DOI: 10.1007/s11156-012-0336-6
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11156-012-0336-6
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11156-012-0336-6?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 search for a different version of it.

    References listed on IDEAS

    as
    1. Drobetz, Wolfgang & Grüninger, Matthias C. & Hirschvogl, Simone, 2010. "Information asymmetry and the value of cash," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2168-2184, September.
    2. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    5. Chutatong Charumilind & Raja Kali & Yupana Wiwattanakantang, 2006. "Connected Lending: Thailand before the Financial Crisis," The Journal of Business, University of Chicago Press, vol. 79(1), pages 181-218, January.
    6. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    7. Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
    8. Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009. "Why Do U.S. Firms Hold So Much More Cash than They Used To?," Journal of Finance, American Finance Association, vol. 64(5), pages 1985-2021, October.
    9. Lee Pinkowitz & Rohan Williamson, 2007. "What is the Market Value of a Dollar of Corporate Cash?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(3), pages 74-81, June.
    10. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    11. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
    12. Frésard, Laurent & Salva, Carolina, 2010. "The value of excess cash and corporate governance: Evidence from US cross-listings," Journal of Financial Economics, Elsevier, vol. 98(2), pages 359-384, November.
    13. 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.
    14. Han, Seungjin & Qiu, Jiaping, 2007. "Corporate precautionary cash holdings," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 43-57, March.
    15. Jarrad Harford & Sattar A. Mansi & William F. Maxwell, 2012. "Corporate Governance and Firm Cash Holdings in the U.S," Springer Books, in: Sabri Boubaker & Bang Dang Nguyen & Duc Khuong Nguyen (ed.), Corporate Governance, edition 127, pages 107-138, Springer.
    16. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    17. Chung, Dennis Y, 1999. "The Informational Effect of Corporate Lobbying against Proposed Accounting Standards," Review of Quantitative Finance and Accounting, Springer, vol. 12(3), pages 243-269, May.
    18. Fritz Foley, C. & Hartzell, Jay C. & Titman, Sheridan & Twite, Garry, 2007. "Why do firms hold so much cash? A tax-based explanation," Journal of Financial Economics, Elsevier, vol. 86(3), pages 579-607, December.
    19. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    20. Woo-Jong Lee, 2011. "Managerial entrenchment and the value of dividends," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 297-322, February.
    21. Pedro García-Teruel & Pedro Martínez-Solano, 2010. "A dynamic perspective on the determinants of accounts payable," Review of Quantitative Finance and Accounting, Springer, vol. 34(4), pages 439-457, May.
    22. Eugene F. Fama & Kenneth R. French, 1998. "Taxes, Financing Decisions, and Firm Value," Journal of Finance, American Finance Association, vol. 53(3), pages 819-843, June.
    23. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    24. Boubakri, Narjess & Guedhami, Omrane & Mishra, Dev & Saffar, Walid, 2012. "Political connections and the cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 541-559.
    25. L. Gil-Alana & R. Iniguez-Sanchez & G. Lopez-Espinosa, 2011. "Endogenous problems in cross-sectional valuation models based on accounting information," Review of Quantitative Finance and Accounting, Springer, vol. 37(2), pages 245-265, August.
    26. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    27. Olubunmi Faleye, 2004. "Cash and Corporate Control," Journal of Finance, American Finance Association, vol. 59(5), pages 2041-2060, October.
    Full references (including those not matched with items on IDEAS)

    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. Hsuan-Chu Lin & She-Chih Chiu, 2017. "Tradeoff on corporate cash holdings: a theoretical and empirical analysis," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 727-763, October.
    2. Jan Felix Weidemann, 2018. "A state-of-the-art review of corporate cash holding research," Journal of Business Economics, Springer, vol. 88(6), pages 765-797, August.
    3. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    4. Mohamed Arouri & Guillaume Pijourlet, 2017. "CSR Performance and the Value of Cash Holdings: International Evidence," Journal of Business Ethics, Springer, vol. 140(2), pages 263-284, January.
    5. Arnold, Marc, 2014. "Managerial cash use, default, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 305-325.
    6. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    7. Maurizio Rocca & Raffaele Staglianò & Tiziana Rocca & Alfio Cariola & Ekaterina Skatova, 2019. "Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators," Small Business Economics, Springer, vol. 53(4), pages 1051-1078, December.
    8. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
    9. Gao, Ning & Mohamed, Abdulkadir, 2018. "Cash-rich acquirers do not always make bad acquisitions: New evidence," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 243-264.
    10. Ma-Ju Wang & Xuan-Qi Su & Hong-Da Wang & Yan-Shing Chen, 2017. "Directors’ education and corporate liquidity: evidence from boards in Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 49(2), pages 463-485, August.
    11. Chen, Hanwen & Yang, Daoguang & Zhang, Joseph H. & Zhou, Haiyan, 2020. "Internal controls, risk management, and cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    12. Jia Liu & Oleksandr Talavera & Shuxing Yin & Mao Zhang, 2022. "Hierarchical political power and the value of cash holdings," Discussion Papers 22-03, Department of Economics, University of Birmingham.
    13. Qazi Awais Amin & Tom Williamson, 2021. "Firms cash management, adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 53-89, January.
    14. Jiaxing You & Ling Lin & Juanjuan Huang & Min Xiao, 2020. "When is cash king? International evidence on the value of cash across the business cycle," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 1101-1131, April.
    15. Smith, Deborah Drummond & Gleason, Kimberly C. & Kannan, Yezen H., 2021. "Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms," International Review of Financial Analysis, Elsevier, vol. 78(C).
    16. Cai, Weixing & Hu, Feng & Xu, Fangming & Zheng, Liyi, 2022. "Anti-corruption campaign and corporate cash holdings: Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PA).
    17. Matthew Hill & G. Kelly & William Hardin, 2012. "Market Value of REIT Liquidity," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 383-401, August.
    18. Huang, Ying & Elkinawy, Susan & Jain, Pankaj K., 2013. "Investor protection and cash holdings: Evidence from US cross-listing," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 937-951.
    19. Adão, Bernardino & Silva, André C., 2020. "The effect of firm cash holdings on monetary policy," European Economic Review, Elsevier, vol. 128(C).
    20. Cui, Di & Ding, Mingfa & Han, Yikai & Suardi, Sandy, 2022. "Foreign shareholders, relative foreign policy uncertainty and corporate cash holdings," International Review of Financial Analysis, Elsevier, vol. 84(C).

    More about this item

    Keywords

    Cash; Liquidity; Corporate lobbying; Political connections; G3; G320;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

    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:kap:rqfnac:v:42:y:2014:i:1:p:123-142. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    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.