Quality of Governance and the Market Value of Cash: Evidence from Spain

The International Journal of Business and Finance Research, v. 7 (2) p. 91-104

14 Pages Posted: 29 Jan 2013

Date Written: 2013

Abstract

We examine the value shareholders attribute to one euro of extra cash held by Spanish firms and how corporate governance impacts this value by comparing the value of cash for companies with good and poor governance. The results show that one euro of extra cash is valued at a considerable premium at companies with good governance. Moreover, the presence of future growth opportunities intensifies this effect. Our results also suggest that the conflict between shareholders and debt holders is more severe in Spain than in the U.S. as investors apply a stronger discount for leverage when valuing Spanish firms.

Keywords: Corporate governance, cash holdings, firm value, future growth opportunities, leverage

JEL Classification: G11, G34

Suggested Citation

Perez de Toledo, Eloisa and Bocatto, Evandro, Quality of Governance and the Market Value of Cash: Evidence from Spain (2013). The International Journal of Business and Finance Research, v. 7 (2) p. 91-104, Available at SSRN: https://ssrn.com/abstract=2149119

Eloisa Perez de Toledo (Contact Author)

MacEwan University ( email )

Rm 5-225K, 10700 104 Avenue
Edmonton, Alberta T5J 2P2
Canada
17806333342 (Phone)

Evandro Bocatto

MacEwan University ( email )

Rm 5-252E, 10700 1014 Avenue
Edmonton, Alberta T5R $s2
Canada

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