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
Date Written: October 29, 2013
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: Suggested Citation