Short-term Institutional Investors and Firm Cash Holdings

40 Pages Posted: 14 Aug 2010 Last revised: 11 Jun 2019

See all articles by Christine A. Brown

Christine A. Brown

Department of Banking and Finance; Financial Research Network (FIRN)

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business

Chander Shekhar

University of Melbourne; Financial Research Network (FIRN)

Date Written: November 29, 2016

Abstract

This study documents a robust and positive relation between ownership by short-term institutional investors and firm cash holdings. The effect of short-term institutional ownership on cash holdings is amplified for growth firms, which are subject to greater variability in future cash flows. Using path analysis, our evidence also indicates that short-term institutional ownership explains firm cash holdings via its effect on the firm’s stock price volatility and crash risk. Overall, our findings are consistent with the notion that frequent changes in ownership by short-term institutional investors leads to increased stock market uncertainty for firms and thus affects firms’ precautionary motives for cash, leading to higher level of cash holdings.

Keywords: Cash holdings; precautionary motives; institutional ownership.

JEL Classification: G32

Suggested Citation

Brown, Christine A. and Chen, Yangyang and Shekhar, Chander, Short-term Institutional Investors and Firm Cash Holdings (November 29, 2016). Available at SSRN: https://ssrn.com/abstract=1657823 or http://dx.doi.org/10.2139/ssrn.1657823

Christine A. Brown (Contact Author)

Department of Banking and Finance ( email )

Building 11E
Clayton, Victoria 3800
Australia
+61 3 99031793 (Phone)
+61 3 99055475 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: www.firn.org.au

Yangyang Chen

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Chander Shekhar

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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