Corporate Governance and Firm’s Cash Holdings: Evidence From India

XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)

19 Pages Posted: 2 May 2013

See all articles by Lalita Anand

Lalita Anand

Indian Institute of Technology (IIT), Madras

Nikhil P. Varaiya

San Diego State University

M. Thenmozhi

Indian Institute of Technology Madras

Date Written: December 21, 2012

Abstract

This paper investigates the empirical determinants of corporate cash holdings for Indian firms. A sample of 1540 unique non finance and non utility Indian firms, with positive assets and positive sales, listed on the National Stock Exchange for a period of 11 years, (from 2001-2011) is selected. We study cash holdings in family business companies, foreign origin companies, Government companies, Private companies and in Group companies. We focus on the effect of ownership structure on firm governance. Corporate governance theories suggest that firms with high levels of concentrated ownership are subject to greater extraction of private benefits from cash holdings. We present evidence of a significant relation between promoter’s ownership and cash holdings. Results reveal that Indian firms with high level of family ownership and group companies have low cash holdings whereas Government companies, Private companies and Foreign origin companies have larger cash holdings suggesting more opportunities for private benefits extraction. The findings of this paper show that corporate cash holding is influenced by market to book ratio, net leverage, net working capital, size, R&D to sales, ROA, and capital expenditure to assets. Dividend dummy and cash flow volatility are found not significant.

Keywords: Cash Holdings, Corporate Governance, Block Holders

Suggested Citation

Anand, Lalita and Varaiya, Nikhil P. and Thenmozhi, M., Corporate Governance and Firm’s Cash Holdings: Evidence From India (December 21, 2012). XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM) . Available at SSRN: https://ssrn.com/abstract=2258266 or http://dx.doi.org/10.2139/ssrn.2258266

Lalita Anand (Contact Author)

Indian Institute of Technology (IIT), Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu 600036
India

Nikhil P. Varaiya

San Diego State University ( email )

San Diego, CA 92182-0763
United States

M. Thenmozhi

Indian Institute of Technology Madras ( email )

Sardar Patel Road
Guindy
Chennai, TN Tamil Nadu
India

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