Corporate Governance and Cash Holdings: Evidence from Worldwide Board Reforms

63 Pages Posted: 9 Apr 2020 Last revised: 21 Dec 2020

See all articles by Ruiyuan (Ryan) Chen

Ruiyuan (Ryan) Chen

West Virginia University

Omrane Guedhami

University of South Carolina - Moore School of Business

Yang Yang

West Virginia University

Gulnara R. Zaynutdinova, Ph.D.

West Virginia University, Department of Finance

Date Written: March 16, 2020

Abstract

Using staggered board reforms as a quasi-natural experiment and a difference-in-differences approach, this study examines the impact of corporate governance on cash holdings in 41 countries. We find that board reforms are followed by significant reductions in cash holdings. This effect is more pronounced for firms with weaker pre-reform corporate governance and for firms from countries with weaker institutional environments. Analysis of cash spending suggests that, following board reforms, firms are more likely to use cash to increase R&D expenditures, dividend payouts, and share repurchases, but not to increase capital or acquisition expenditures. Finally, the results indicate that enhanced corporate governance following board reforms leads to higher cash values.

Keywords: Board reforms; cash holdings; institutions; value of cash

JEL Classification: G32; G34; G35

Suggested Citation

Chen, Ruiyuan and Guedhami, Omrane and Yang, Yang and Zaynutdinova, Gulnara R., Corporate Governance and Cash Holdings: Evidence from Worldwide Board Reforms (March 16, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3554827 or http://dx.doi.org/10.2139/ssrn.3554827

Ruiyuan Chen (Contact Author)

West Virginia University ( email )

1601 University Avenue
Morgantown, WV 26505
United States

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Yang Yang

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

Gulnara R. Zaynutdinova

West Virginia University, Department of Finance ( email )

John Chambers College of Business and Economics
Morgantown, WV 26506
United States

HOME PAGE: http://https://business.wvu.edu/

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