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http://ssrn.com/abstract=1508556
 
 

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Agency Conflicts and Cash: Estimates from a Dynamic Model


Boris Nikolov


University of Rochester - Simon Graduate School of Business

Toni M. Whited


University of Rochester - Simon Business School; National Bureau of Economic Research

October 11, 2013

Journal of Finance, Forthcoming

Abstract:     
Which agency problems affect corporate cash policy? To answer this question, we estimate a dynamic model of finance and investment with three mechanisms that misalign managerial and shareholder incentives: limited managerial ownership of the firm, compensation based on firm size, and managerial perquisite consumption. We find that perquisite consumption critically impacts cash policy. Size-based compensation also matters, but less. Firms with lower blockholder and institutional ownership have higher managerial perquisite consumption; low managerial ownership is a key factor in the secular upward trend in cash holding; and agency plays little role in small firms' substantial cash holdings.

Number of Pages in PDF File: 70

Keywords: Cash, agency conflicts, structural estimation

JEL Classification: G32

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Date posted: November 19, 2009 ; Last revised: October 16, 2013

Suggested Citation

Nikolov, Boris and Whited, Toni M., Agency Conflicts and Cash: Estimates from a Dynamic Model (October 11, 2013). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1508556 or http://dx.doi.org/10.2139/ssrn.1508556

Contact Information

Boris Nikolov
University of Rochester - Simon Graduate School of Business ( email )
Rochester, NY 14627
United States
HOME PAGE: http://nikolov.simon.rochester.edu
Toni M. Whited (Contact Author)
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
HOME PAGE: http://toni.marginalq.com

National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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