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Investor protection and corporate cash holdings around the world: new evidence

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  • Mai Iskandar-Datta

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  • Yonghong Jia

Abstract

We provide new evidence that firms under weak governance regimes hold less cash than firms operating under strong governance, contrary to previous literature. Our findings also establish that there are two independent effects for the de jure and de facto aspects of governance that protect minority shareholders. Consistent with managerial empire building prediction, our study reveals that firms deplete their excess cash by overinvesting and this effect is exacerbated in countries with weak governance. The excess cash depletion has an adverse impact on firm performance, more so in countries with weak investor protection which is in support of the agency costs explanation. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Mai Iskandar-Datta & Yonghong Jia, 2014. "Investor protection and corporate cash holdings around the world: new evidence," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 245-273, August.
  • Handle: RePEc:kap:rqfnac:v:43:y:2014:i:2:p:245-273 DOI: 10.1007/s11156-013-0371-y
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    References listed on IDEAS

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    Cited by:

    1. Jianan Guo, 2016. "Ultimate Controlling Shareholders and Dividend Payout Policy in Chinese Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-35, June.
    2. Thang Nguyen & Charlie X. Cai & Patrick McColgan, 2017. "How firms manage their cash flows: an examination of diversification’s effect," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 701-724, April.
    3. repec:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0606-9 is not listed on IDEAS

    More about this item

    Keywords

    Investor protection; Corporate cash policy; Firm performance; Corporate investments; Agency problem; G31; G32; G34;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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