Financial Market Structure and Cash Holdings: A Laboratory of Dark Trading

83 Pages Posted: 14 Dec 2023 Last revised: 27 Jan 2025

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Woon Sau Leung

University of Southampton - Southampton Business School

Khaladdin Rzayev

University of Edinburgh; Koc University; Systemic Risk Centre - LSE

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: November 25, 2023

Abstract

Does financial market structure influence firms’ cash saving decisions? We find that firms hold less cash when more of their shares are traded on alternative trading platforms, i.e., “dark” venues. We exploit the randomized variation in dark trading generated by the trade at rule of the Tick Size Pilot Program to establish a causal relation. Dark trading is also associated with a higher value of cash. Enhanced price efficiency due to dark trading facilitates the relaxation of financial constraints and the improvement of governance, mechanisms through which dark trading lowers the precautionary demand for cash holdings.

Keywords: Dark trading, Cash holdings, Finance constraints, Corporate Governance, Market feedback

JEL Classification: G12, G14, G32, M40, M41

Suggested Citation

Brogaard, Jonathan and Leung, Woon Sau and Rzayev, Khaladdin and Tian, Xuan, Financial Market Structure and Cash Holdings: A Laboratory of Dark Trading (November 25, 2023). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=4644288 or http://dx.doi.org/10.2139/ssrn.4644288

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Woon Sau Leung

University of Southampton - Southampton Business School ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

Khaladdin Rzayev (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Koc University ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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