Cash Holdings, Corporate Governance and Financial Constraints

32 Pages Posted: 30 Sep 2012

See all articles by Edith Ginglinger

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Khaoula Saddour

Université Paris Dauphine - DRM-CEREG

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Date Written: September 30, 2012

Abstract

We examine the relation between cash holdings, corporate governance and financial constraints. We find that firms with weak shareholder rights hold less cash, in contrast to the predictions of agency theory. This result is partly due to the positive correlation that exists between shareholder rights measures and the degree of financial constraint faced by the firm. We show that control enhancing mechanisms reduce cash holdings of financially constrained firms. Control/ownership deviation gives these firms extra flexibility, enabling them to issue shares without blockholders losing control, and provides an alternative to high cash holdings.

Keywords: cash holdings, financial constraints, governance, cash flow rights, voting rights, family firms

JEL Classification: G32, G35

Suggested Citation

Ginglinger, Edith and Saddour, Khaoula, Cash Holdings, Corporate Governance and Financial Constraints (September 30, 2012). Available at SSRN: https://ssrn.com/abstract=2154575 or http://dx.doi.org/10.2139/ssrn.2154575

Edith Ginglinger (Contact Author)

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Khaoula Saddour

Université Paris Dauphine - DRM-CEREG ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

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