Firm Size, Information Asymmetry and Window Dressing in Cash Holdings: Evidence from Quarterly Financial Statements

52 Pages Posted: 21 Jun 2011 Last revised: 1 Aug 2011

See all articles by Rahman Khokhar

Rahman Khokhar

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science

Date Written: July 6, 2011

Abstract

To the best of the author’s knowledge, this is first empirical paper to examine the tendency of U.S. corporate firms to engage in window dressing behaviour in cash holdings. Using quarterly financial data, S&P constituents’ data, and S&P issuer credit rating data from Compustat, stock price data from Center for Research for Security Prices (CRSP), and governance index data, we find an evidence of upward window dressing in cash holdings during the fourth fiscal quarter (financial year-end) even after controlling for corporate cash holdings determinants. This window dressing behaviour is widespread across subsamples based on size, competition, risk, governance, and level of information asymmetry. Our findings further suggest that the upward window dressing in corporate cash holdings towards fiscal year-end is sensitive to firm size and to some extent the level of information asymmetry.

Keywords: Cash holdings, window dressing, information asymmetry, corporate governance, financial reporting

JEL Classification: G3, G30, G34, M48

Suggested Citation

Khokhar, Abdul Rahman, Firm Size, Information Asymmetry and Window Dressing in Cash Holdings: Evidence from Quarterly Financial Statements (July 6, 2011). Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1865361 or http://dx.doi.org/10.2139/ssrn.1865361

Abdul Rahman Khokhar (Contact Author)

Saint Mary's University, Canada - Department of Finance, Information Systems & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada

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