Determinants and Marginal Value of Corporate Cash Holdings: Financial Constraints Versus Corporate Governance
The International Journal of Business and Finance Research, Volume 12, Number 1, 2018
14 Pages Posted: 23 Oct 2018
Date Written: 2018
Previous studies indicate that financial constraints and corporate governance are main factors affecting corporate cash holdings. This paper simultaneously examines the interactive influences of financial constraints and corporate governance on corporate cash holdings among publicly traded U.S. firms. We find that firms with good governance hold more cash than do firms with poor governance, regardless of financial constraints. Furthermore, the cash holdings of financially constrained firms with good corporate governance are the highest among all firm types in this study. The impact of corporate governance on firm value is statistically strong only among firms with financial constraints. Our results indicate that financial constraints are a more crucial determinant of corporate cash holdings than is corporate governance. These findings have implications that firms with financial constraints should pay more attention to keep optimal liquidity, especially avoiding the unnecessary waste due to agency problems.
Keywords: Corporate Cash Holdings, Corporate Governance, Financial Constraints
JEL Classification: G32, G34
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