70 Pages Posted: 19 Nov 2009 Last revised: 16 Oct 2013
Date Written: October 11, 2013
Which agency problems affect corporate cash policy? To answer this question, we estimate a dynamic model of finance and investment with three mechanisms that misalign managerial and shareholder incentives: limited managerial ownership of the firm, compensation based on firm size, and managerial perquisite consumption. We find that perquisite consumption critically impacts cash policy. Size-based compensation also matters, but less. Firms with lower blockholder and institutional ownership have higher managerial perquisite consumption; low managerial ownership is a key factor in the secular upward trend in cash holding; and agency plays little role in small firms' substantial cash holdings.
Keywords: Cash, agency conflicts, structural estimation
JEL Classification: G32
Suggested Citation: Suggested Citation
Nikolov, Boris and Whited, Toni M., Agency Conflicts and Cash: Estimates from a Dynamic Model (October 11, 2013). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1508556 or http://dx.doi.org/10.2139/ssrn.1508556
By Ivo Welch