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Agency Conflicts and Cash: Estimates from a Dynamic Model

Boris Nikolov

University of Lausanne; Swiss Finance Institute

Toni M. Whited

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

October 11, 2013

Journal of Finance, Forthcoming

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 Lausanne ( email )
Lausanne, CH-1015
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Toni M. Whited (Contact Author)
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
National Bureau of Economic Research ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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