Does the Board of Directors Affect Cash Holdings? A Study of French Listed Firms

Journal of Management and Governance, Forthcoming

30 Pages Posted: 31 Oct 2013

See all articles by Sabri Boubaker

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion

Imen Derouiche

Independent

Duc Khuong Nguyen

IPAG Business School

Date Written: October 29, 2013

Abstract

Prior studies show that agency conflicts are important in explaining corporate financial policies and that the board of directors is central to corporate governance. In this study, we examine the role of this governing body in the accumulation of cash reserves. Using a sample of 597 French listed firms during 2001-2007, we find that firms with boards deemed to be effective in mitigating agency problems — that is, those appointing independent directors and splitting chief executive officer and chair positions — accumulate less cash reserves than those with less effective boards. Moreover, two-tier boards are more efficient in mitigating the agency costs of free cash flow, leading to less corporate cash hoarding. These findings support the idea that agency conflicts influence cash management policy and that effective boards of directors play an important disciplinary role in a concentrated ownership setting.

Keywords: Corporate governance, Board of directors, Agency costs, Corporate governance, Cash holdings

JEL Classification: G31, G32

Suggested Citation

Boubaker, Sabri and Derouiche, Imen and Nguyen, Duc Khuong, Does the Board of Directors Affect Cash Holdings? A Study of French Listed Firms (October 29, 2013). Journal of Management and Governance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2347175

Sabri Boubaker (Contact Author)

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion ( email )

61 Avenue du General de Gaulle
94010 Creteil
France

HOME PAGE: http://www.irg.u-pec.fr/enseignant.php?num=58

Imen Derouiche

Independent ( email )

Duc Khuong Nguyen

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

HOME PAGE: http://www.ipag.fr/en/

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