Corporate Liquidity

47 Pages Posted: 30 Jul 2002

See all articles by Amy K. Dittmar

Amy K. Dittmar

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Jan Mahrt-Smith

University of Toronto - Rotman School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 2002

Abstract

Agency problems are an important determinant of corporate liquidity. For a sample of more than 11,000 firms from 45 countries, we find that corporations in countries where shareholders rights are not well protected hold up to twice as much cash as corporations in countries with good shareholder protection. In addition, when shareholder protection is poor, factors that generally drive the need for liquidity, such as investment opportunities and asymmetric information, actually become less important. These results strengthen after controlling for capital market development. In fact, consistent with the importance of agency costs, we find that managers actually hold larger cash balances when capital markets are better developed. Our evidence indicates that investors in countries with poor shareholder protection cannot force managers to disgorge excessive cash balances.

Keywords: Agency costs, Cash, liquidity, shareholder rights, shareholder protection, international, corporate governance

JEL Classification: G34, G15, G32

Suggested Citation

Dittmar, Amy and Servaes, Henri and Mahrt-Smith, Jan, Corporate Liquidity (July 2002). Tuck-JQFA Contemporary Corporate Governance Issues II Conference. Available at SSRN: https://ssrn.com/abstract=319445 or http://dx.doi.org/10.2139/ssrn.319445

Amy Dittmar (Contact Author)

University of Michigan at Ann Arbor - The Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-3108 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/adittmar/

Henri Servaes

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7000 8268 (Phone)
+44 20 7000 8201 (Fax)

HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jan Mahrt-Smith

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
897
rank
23,624
Abstract Views
4,335
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information