Abstract

http://ssrn.com/abstract=2000226
 
 

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Investor Horizons and Corporate Cash Holdings


Jarrad Harford


University of Washington

Ambrus Kecskes


York University - Schulich School of Business

Sattar Mansi


Virginia Polytechnic Institute & State University

July 4, 2012


Abstract:     
We study the effect of investor horizons on corporate cash holdings. We argue that investors with longer horizons monitor more because their net benefit of monitoring is higher. Consequently, the optimal amount of corporate cash holdings increases, so firms hold more cash. We find empirical support for our argument: (1) firms with longer investor horizons hold more cash; (2) when they have excess cash, they invest less and pay out more to shareholders; and (3) they are more likely to invest in projects with long-term payoffs, as evidenced by increased profitability in the long-term. We establish causality using long-term investors who index as an instrument. Our results are not explained by internal corporate governance mechanisms or ownership concentration (blockholders).

Number of Pages in PDF File: 46

Keywords: Investor horizons, Institutional investors, Ownership structure, Investor heterogeneity, Corporate governance, Monitoring, Cash holdings

JEL Classification: G23, G31, G32, G34, G35

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Date posted: February 6, 2012 ; Last revised: July 5, 2012

Suggested Citation

Harford, Jarrad and Kecskes, Ambrus and Mansi, Sattar, Investor Horizons and Corporate Cash Holdings (July 4, 2012). Available at SSRN: http://ssrn.com/abstract=2000226 or http://dx.doi.org/10.2139/ssrn.2000226

Contact Information

Jarrad Harford (Contact Author)
University of Washington ( email )
Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)
HOME PAGE: http://faculty.washington.edu/jarrad/
Ambrus Kecskes
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Sattar Mansi
Virginia Polytechnic Institute & State University ( email )
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