Cash Holdings, Corporate Governance and Financial Constraints

33 Pages Posted: 31 Jul 2008

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Khaoula Saddour

Université Paris Dauphine - DRM-CEREG

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Date Written: July 30, 2008

Abstract

We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.

Keywords: cash holdings, financial constraints, governance

JEL Classification: G32, G35

Suggested Citation

Ginglinger, Edith and Saddour, Khaoula, Cash Holdings, Corporate Governance and Financial Constraints (July 30, 2008). Available at SSRN: https://ssrn.com/abstract=1188843 or http://dx.doi.org/10.2139/ssrn.1188843

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Khaoula Saddour

Université Paris Dauphine - DRM-CEREG ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

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