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Governance mechanisms, investment opportunity set and SMEs cash holdings

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  • Yacine Belghitar

    ()

  • James Khan

    ()

Abstract

This study analyses the effect of firm characteristics and governance mechanisms on cash holdings for a sample of UK SMEs. The results show that UK SMEs with greater cash flow volatility and institutional investors hold more cash; whereas levered and dividend paying SMEs with non-executive ownership hold less cash. We also find that ownership structure is significant only in explaining the cash holdings for firms with high growth investment opportunities, and leverage is only significant in explaining the cash held by firms with low growth investment opportunities. Our findings suggest that internal governance mechanisms are more effective for SMEs with high growth investment opportunities, while external governance mechanisms, such as capital market monitoring, are more effective for firms with low growth investment opportunities. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Yacine Belghitar & James Khan, 2013. "Governance mechanisms, investment opportunity set and SMEs cash holdings," Small Business Economics, Springer, vol. 40(1), pages 59-72, January.
  • Handle: RePEc:kap:sbusec:v:40:y:2013:i:1:p:59-72
    DOI: 10.1007/s11187-011-9366-z
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Efstathios Magerakis & Costas Siriopoulos & Athanasios Tsagkanos, 2015. "Cash Holdings and Firm Characteristics: Evidence from UK Market," Journal of Risk & Control, Risk Market Journals, vol. 2(1), pages 19-43.
    2. repec:spr:eurasi:v:7:y:2017:i:3:d:10.1007_s40821-016-0070-4 is not listed on IDEAS
    3. repec:eee:corfin:v:45:y:2017:i:c:p:203-219 is not listed on IDEAS
    4. Yacine Belghitar & Ephraim Clark, 2014. "Convexity, Magnification, And Translation: The Effect Of Managerial Option-Based Compensation On Corporate Cash Holdings," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(2), pages 191-210, June.
    5. Orens, Raf & Reheul, Anne-Mie, 2013. "Do CEO demographics explain cash holdings in SMEs?," European Management Journal, Elsevier, vol. 31(6), pages 549-563.
    6. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.

    More about this item

    Keywords

    SMEs; Ownership structure; Governance mechanisms; Investment opportunity set; G31; G32; G34; L26;

    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
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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