Information Asymmetry and Corporate Cash Holdings

49 Pages Posted: 5 Mar 2011 Last revised: 20 Nov 2015

See all articles by Kee H. Chung

Kee H. Chung

State University of New York at Buffalo - School of Management

Jang-Chul Kim

Northern Kentucky University - Haile College of Business

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business; Taejae University

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Date Written: October 28, 2015

Abstract

In this study we analyze the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, we show that companies that operate in higher information asymmetry environments have smaller cash holdings. We continue to find a negative relation between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference-in-difference tests employing brokerage-firm merger and closure events. On the whole, our results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.

Keywords: Cash Holdings, Information Asymmetry, Corporate Governance, Firm Value

JEL Classification: G30, G32, G34

Suggested Citation

Chung, Kee H. and Kim, Jang-Chul and Kim, Young Sang and Zhang, Hao, Information Asymmetry and Corporate Cash Holdings (October 28, 2015). Available at SSRN: https://ssrn.com/abstract=1778582 or http://dx.doi.org/10.2139/ssrn.1778582

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Jang-Chul Kim

Northern Kentucky University - Haile College of Business ( email )

Dept of Accounting, Finance, and Business Law
Highland Heights, KY 41099
United States
859-572-1486 (Phone)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

Taejae University ( email )

Seoul, Seoul
Korea, Republic of (South Korea)

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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