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Agency theories predict that the value of corporate cash holdings is less in countries with poor investor protection because of the greater ability of controlling shareholders to extract private benefits from cash holdings in such countries. Using various specifications of the valuation regressions of Fama and French (1998) , we find that the relation between cash holdings and firm value is much weaker in countries with poor investor protection than in other countries. In further support of the importance of agency theories, the relation between dividends and firm value is weaker in countries with stronger investor protection. Copyright 2006 by The American Finance Association.

The average cash-to-assets ratio for U.S. industrial firms more than doubles from 1980 to 2006. A measure of the economic importance of this increase is that at the end of the sample period, the average firm can retire all debt obligations with its cash holdings. Cash ratios increase because firms' cash f lows become riskier. In addition, firms change: They hold fewer inventories and receivables and are increasingly R&D intensive. While the precautionary motive for cash holdings plays an important role in explaining the increase in cash ratios, we find no consistent evidence that agency conf licts contribute to the increase.

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This paper develops and tests a model of how country characteristics, such as legal protections for minority investors and the level of economic and financial development, influence firms' costs and benefits in implementing measures to improve their own governance and transparency. We find that country characteristics explain much more of the variance in governance ratings (ranging from 39% to 73%) than observable firm characteristics (ranging from 4% to 22%

Acquiring-firm shareholders lost 12 cents around acquisition announcements per dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. The 1998 to 2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisitions with negative synergy gains by firms with extremely high valuations. Without these acquisitions, the wealth of acquiring-firm shareholders would have increased. Firms that make these acquisitions with large dollar losses perform poorly afterward.IN THIS PAPER, WE EXAMINE THE EXPERIENCE of acquiring-firm shareholders in the recent merger wave and compare it to their experience in the merger wave of the 1980s. Such an investigation is important because the recent merger wave is the largest by far in American history. It is associated with higher stock valuations, greater use of equity as a form of payment for transactions, and more takeover defenses in place than the merger wave of the 1980s.1 Though these differences suggest poorer returns for acquiring-firm shareholders, there are also several reasons why the acquiring-firm shareholders may have better returns. With the growth of options as a form of managerial compensation in the 1990s, managerial wealth is more closely tied to stock prices, presumably making management more conscious of the impact of acquisitions on the stock