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
Date Written: July 6, 2011
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: Suggested Citation