Corporate Cash Holdings and Agency Conflicts
30 Pages Posted: 13 Jul 2004
Date Written: July 2004
Abstract
The paper explores the institutional context as a driving force of cash holdings, focusing on the role of ownership concentration, voting rights, growth opportunities, and information asymmetries. For this purpose, we use a sample of 128 Swiss firms for the period 1990-2000 as Swiss firms are characterized by high cash levels and concentrated ownership. Also, minority shareholders are poorly protected in Switzerland. Our results show that both the tradeoff and pecking order theories are at work. More importantly, we find that the institutional context substantially affects cash holding behavior as firms with less concentrated ownership retain more cash. Finally, firms with different voting right shares adjust more slowly than firms with simple and unique voting right structure.
Keywords: Cash holdings, ownership structure, agency conflicts, dual class shares, error correction model
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
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