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Cash holdings, corporate governance and financial constraints

Author

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  • Edith Ginglinger

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Khaoula Saddour

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.

Suggested Citation

  • Edith Ginglinger & Khaoula Saddour, 2007. "Cash holdings, corporate governance and financial constraints," Working Papers halshs-00162404, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00162404
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00162404
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    1. repec:dau:papers:123456789/3031 is not listed on IDEAS
    2. repec:dau:papers:123456789/2940 is not listed on IDEAS
    3. Anggita Langgeng WIJAYA & BANDI, 2018. "The effect of corporate governance and accruals quality on the corporate cash holdings: study on the manufacturing companies in Indonesian Stock Exchange," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 16(151), pages 415-415.
    4. Godfred A. Bokpin & Zangina Isshaq & Francis Aboagye‐Otchere, 2011. "Ownership structure, corporate governance and corporate liquidity policy," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 3(3), pages 262-279, August.
    5. Vikash Gautam & Ashish Singh & Sarthak Gaurav, 2014. "Cash Holdings and Finance Constraints in Indian Manufacturing Firms," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 56-75, September.
    6. Heru Fahlevi & Muhammad Arfan & Hafidah Hafidah, 2016. "The Influence of Dividend Payments, Profitability, Liquidity and Firm Size for Cash Holdings ? Case of Indonesian Manufacturing Companies," Proceedings of International Academic Conferences 4106579, International Institute of Social and Economic Sciences.

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