How Friends with Money Affect Corporate Cash Policies? The International Evidence
European Financial Management, 2019, 25 (4), 807-860
60 Pages Posted: 30 Aug 2018 Last revised: 19 Sep 2019
Date Written: August 22, 2018
We examine the association between managerial social capital and the cash flow sensitivity of cash in an international setting. We find that social capital reduces the marginal propensity to save cash out of cash flows. This association is stronger for more financially constrained firms, firms with high hedging needs, and firms with more uncertain cash flows. The effect of social capital is partially moderated by the extent of legal protection standards and financial development. We also show that social capital matters for valuation. These findings are robust to alternative model specifications, alternative variable measurement, and tests for endogeneity.
Keywords: cash management, social capital, social networks
JEL Classification: G32, Z13
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