International Evidence on Cash Holdings and Expected Managerial Agency Problems
University of California, Riverside
Karl V. Lins
University of Utah - Department of Finance
Review of Financial Studies, Forthcoming
This paper uses managerial control rights data for over 5000 firms from 31 countries to examine the net costs and benefits of cash holdings. We find that when external country-level shareholder protection is weak, firm values are lower when controlling managers hold more cash. Further, when external shareholder protection is weak we find that firm values are higher when controlling managers pay dividends. Only when external shareholder protection is strong do we find that cash held by controlling managers is unrelated to firm value, consistent with generally prevailing U.S. and international evidence.
Keywords: cash holdings, agency problems, corporate governance
JEL Classification: G32, G34, G35
Date posted: November 17, 2006
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