Corporate Liquidity

49 Pages Posted: 11 Oct 2002

See all articles by Amy K. Dittmar

Amy K. Dittmar

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

Jan Mahrt-Smith

University of Toronto - Rotman School of Management

Henri Servaes

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 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: Corporate liquidity, cash holdings, shareholder rights

JEL Classification: G31, G32, G34

Suggested Citation

Dittmar, Amy and Mahrt-Smith, Jan and Servaes, Henri, Corporate Liquidity (August 2002). CEPR Discussion Paper No. 3499. Available at SSRN: https://ssrn.com/abstract=333421

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/

Jan Mahrt-Smith

University of Toronto - Rotman School of Management ( email )

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

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

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