Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies

European Xtramile Centre of African Studies WP/21/004

25 Pages Posted: 9 Mar 2021

See all articles by David Adeabah

David Adeabah

Curtin University; University of Ghana - University of Ghana Business School (UGBS)

Charles Andoh

University of Ghana - Department of Finance

Simplice Asongu

African Governance and Development Institute

Isaac Akomea-Frimpong

Western Sydney University

Date Written: January 14, 2021

Abstract

We examine the relationship between elections, political connections, and cash holdings in Ghanaian local assemblies. Using a panel dataset of 179local assemblies over a period 2012 to 2017, a panel regression and the generalized method of moments estimation techniques was employed for the analysis. We find that local assemblies hold less cash during election years, which suggests that election may be one of the potential factors to mitigate agency conflict in weak governance environment. Further, we demonstrate that local assemblies that have political connections hold less cash; however, political uncertainty makes these entities conducive to agency problems than their non-connected peers because they hold more cash. Additional analysis indicates that one year prior to elections, managerial conservatism kicks-in and leads managers to hold more cash in local assemblies that have political connections, which continues and becomes more pronounced in election years. Our results have implications for regulations on the cash management practices of local assemblies.

Keywords: agency problem; cash holdings; generalized method of moments; panel regression; political connections

Suggested Citation

Adeabah, David and Andoh, Charles and Asongu, Simplice and Akomea-Frimpong, Isaac, Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies (January 14, 2021). European Xtramile Centre of African Studies WP/21/004, Available at SSRN: https://ssrn.com/abstract=3765924 or http://dx.doi.org/10.2139/ssrn.3765924

David Adeabah

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

University of Ghana - University of Ghana Business School (UGBS) ( email )

Volta Rd
Accra
Ghana

Charles Andoh

University of Ghana - Department of Finance ( email )

Volta Rd
Accra
Ghana

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Isaac Akomea-Frimpong

Western Sydney University ( email )

12/36 Manning Street
Kingswood, AK NSW 2747
Australia
0451201161 (Phone)
2747 (Fax)

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