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Creditor Rights, Country Governance, and Corporate Cash Holdings

Author

Listed:
  • Bruce Seifert

    () (Old Dominion University)

  • Olubunmi Faleye

    () (Northeastern University)

  • Halit Gonenc

    () (University of Groningen)

Abstract

This study examines the impact of creditor rights on cash holdings using a sample of firms from 48 countries. We argue that creditor rights affect the willingness of lenders to provide credit, which in turn affects the need for internal liquidity and cash holdings. Consistent with this, we find that corporate cash holdings decline with the strength of creditor rights. We also find that this relation depends on the quality of country governance. Among well-governed countries, firms hold less cash as creditor rights strengthen. In contrast, cash holdings increase with creditor rights in poorly governed countries. In these countries, it appears that the fear of expropriation motivates creditors with stronger rights to require higher levels of cash holding by borrowers.

Suggested Citation

  • Bruce Seifert & Olubunmi Faleye & Halit Gonenc, 2012. "Creditor Rights, Country Governance, and Corporate Cash Holdings," Koç University-TUSIAD Economic Research Forum Working Papers 1214, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1214
    as

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1214.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Corporate governance; Cash levels; Creditor rights; International markets.;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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