Corporate Governance and Cash Holdings: Evidence from Worldwide Board Reforms
63 Pages Posted: 9 Apr 2020 Last revised: 21 Dec 2020
Date Written: March 16, 2020
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: Suggested Citation