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Agency Conflicts and Cash: Estimates from a Structural ModelBoris NikolovUniversity of Rochester - Simon Graduate School of Business Toni M. WhitedUniversity of Rochester - Simon Graduate School of Business November 18, 2009 Simon School Working Paper No. FR 10-02 Abstract: We estimate a dynamic model of firm investment and cash accumulation to ascertain whether agency problems affect corporate cash policy. We model three specific mechanisms that misalign managerial and shareholder incentives: limited managerial ownership of the firm, compensation based on firm size, and managerial perquisite consumption. Our estimates indicate that agency issues related to perquisites are more important for explaining corporate cash balances but that agency issues related to firm size are more important for firm value. We find that firms with lower blockholder and institutional ownership have higher managerial perquisite consumption. We also find that lower managerial ownership is a key factor in the secular upward trend in cash holding.
Number of Pages in PDF File: 57 Keywords: Cash, agency conflicts, structural estimation JEL Classification: G32 working papers seriesDate posted: November 19, 2009 ; Last revised: November 29, 2011Suggested CitationContact Information
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