The Effects of Country-Level Governance and Corporate Cash Holdings: Evidence from Hospitality Firms in ASEAN-5

Despite the proliferation of research on cash holdings, the effects of external factors on corporate cash policy are little known. There are only a handful of studies have examined the relationship between issues related to institutional factors and cash holdings to date. Many studies have examined the effects of internal, as opposed to external factors on firms’ cash holdings behaviours. External factors, such as institutional environment have mostly been neglected in the extant literature, despite the fact that institutional factors have a direct effect on firms’ behaviours and strategic choices. This paper inspects the relationships between country governance and corporate cash holdings. This paper presents a cross-country study using 1274 firm-year observations from 2001 to 2013 from public listed hospitality firms in ASEAN-5 to test the impact of corporate governance on cash holdings. The relationship between external governance mechanism and cash holdings behaviour of firms at country-level are studied. The results show positive and significant relationship between the country-level control of corruption, regulatory quality, the rule of law, and corporate liquidity. However, there is no significant relationship between country-level political stability, voice and accountability and corporate liquidity. Further investigation was carried out to test the effect of tourism crisis and corporate liquidity. The results shall benefit various parties including the legislators and policy makers. Not only it serves as a strategic deterrence, but also helps firms to gauge opportunities.