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Investor Horizons and Corporate Cash Holdings

46 Pages Posted: 6 Feb 2012 Last revised: 5 Jul 2012

Jarrad Harford

University of Washington

Ambrus Kecskes

York University - Schulich School of Business

Sattar Mansi

Virginia Tech

Multiple version iconThere are 2 versions of this paper

Date Written: July 4, 2012


We study the effect of investor horizons on corporate cash holdings. We argue that investors with longer horizons monitor more because their net benefit of monitoring is higher. Consequently, the optimal amount of corporate cash holdings increases, so firms hold more cash. We find empirical support for our argument: (1) firms with longer investor horizons hold more cash; (2) when they have excess cash, they invest less and pay out more to shareholders; and (3) they are more likely to invest in projects with long-term payoffs, as evidenced by increased profitability in the long-term. We establish causality using long-term investors who index as an instrument. Our results are not explained by internal corporate governance mechanisms or ownership concentration (blockholders).

Keywords: Investor horizons, Institutional investors, Ownership structure, Investor heterogeneity, Corporate governance, Monitoring, Cash holdings

JEL Classification: G23, G31, G32, G34, G35

Suggested Citation

Harford, Jarrad and Kecskes, Ambrus and Mansi, Sattar, Investor Horizons and Corporate Cash Holdings (July 4, 2012). Available at SSRN: or

Jarrad Harford (Contact Author)

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)


Ambrus Kecskes

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3

Sattar Mansi

Virginia Tech ( email )

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