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Corporate governance and cash policies of multinational corporations

  • BEUSELINCK, Christof
  • DELOOF, Marc
  • VANSTRAELEN, Ann

This study investigates cash policies of multinational corporations (MNCs) for a large sample of European MNCs and their subsidiaries in the period 1998-2004. The results are consistent with the hypothesis that cash holdings depend on a trade-off between the superior knowledge of the subsidiary over headquarters and the agency costs of discretionary behavior by the subsidiary’s management. We find that foreign subsidiaries hold more cash than domestic subsidiaries, although geographical distance from headquarters does not seem to matter. Horizontal subsidiaries hold more cash than vertical subsidiaries. Furthermore, we find that subsidiaries hold more cash if they are located in a country with better law enforcement and lower corruption. This result is consistent with the argument that better corporate governance in the subsidiary country reduces the risk of expropriation by the subsidiary management. Finally, the availability of external finance in the subsidiary country reduces the level of subsidiary cash holdings.

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File URL: http://anet.uantwerpen.be/docman/irua/0bbbd7/8d7b0170.pdf
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Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2011020.

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Length: 34 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:ant:wpaper:2011020
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Web page: https://www.uantwerp.be/en/faculties/applied-economic-sciences/

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