State Ownership and Corporate Cash Holdings
81 Pages Posted: 23 Dec 2015 Last revised: 7 Mar 2023
Date Written: July 15, 2017
Using a unique sample of newly privatized firms from 59 countries, this study provides new evidence about the agency costs of state ownership and new insight into the corporate governance role of country-level institutions. Consistent with agency theory, we find strong and robust evidence that state ownership is positively related to corporate cash holdings. Moreover, we find that the strength of country-level institutions affects the relation between state ownership and the value of cash holdings. In particular, as state ownership increases, markets discount the value of cash holdings more in countries with weaker institutions.
Keywords: Privatization; government ownership; cash holdings; institutions; value of cash
JEL Classification: G32, G34, G35
Suggested Citation: Suggested Citation