State Ownership and Corporate Cash Holdings

81 Pages Posted: 23 Dec 2015 Last revised: 17 Jul 2017

See all articles by Ruiyuan (Ryan) Chen

Ruiyuan (Ryan) Chen

West Virginia University

Sadok El Ghoul

University of Alberta - Campus Saint-Jean

Omrane Guedhami

University of South Carolina - Moore School of Business

Robert C. Nash

Wake Forest University

Date Written: July 15, 2017

Abstract

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

Chen, Ruiyuan and El Ghoul, Sadok and Guedhami, Omrane and Nash, Robert C., State Ownership and Corporate Cash Holdings (July 15, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2707441 or http://dx.doi.org/10.2139/ssrn.2707441

Ruiyuan Chen

West Virginia University ( email )

1601 University Avenue
Morgantown, WV 26505
United States

Sadok El Ghoul (Contact Author)

University of Alberta - Campus Saint-Jean ( email )

Edmonton, Alberta T6G 2R3
Canada
780-465-8725 (Phone)
780-465-8760 (Fax)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Robert C. Nash

Wake Forest University ( email )

2601 Wake Forest Road
Winston-Salem, NC 27109
United States

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