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Cash holdings, corporate governance and financial constraints

  • Edith Ginglinger


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

  • Khaoula Saddour


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

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.

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Paper provided by HAL in its series Working Papers with number halshs-00162404.

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Date of creation: 2007
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Handle: RePEc:hal:wpaper:halshs-00162404
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