State Ownership and Corporate Cash Holdings

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

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), Available at SSRN: https://ssrn.com/abstract=2707441 or http://dx.doi.org/10.2139/ssrn.2707441