Information Asymmetry and Corporate Cash Holdings
49 Pages Posted: 5 Mar 2011 Last revised: 20 Nov 2015
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: Suggested Citation
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