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

See all articles by David Javakhadze

David Javakhadze

Florida Atlantic University

Tijana Rajkovic

San Jose State University

Date Written: August 22, 2018

Abstract

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

Suggested Citation

Javakhadze, David and Rajkovic, Tijana, How Friends with Money Affect Corporate Cash Policies? The International Evidence (August 22, 2018). European Financial Management, 2019, 25 (4), 807-860 , Available at SSRN: https://ssrn.com/abstract=3237052 or http://dx.doi.org/10.2139/ssrn.3237052

David Javakhadze (Contact Author)

Florida Atlantic University ( email )

College of Busines
777 Glades Road
Boca Raton, FL 33433
United States
561-297-2914 (Phone)

Tijana Rajkovic

San Jose State University ( email )

One Washington Square BT851
San Jose, CA 95192
United States
(408) 924-3467 (Phone)

HOME PAGE: http://www.sjsu.edu/people/tijana.rajkovic/

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