Cash holding and control-oriented finance

Abstract

We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.

Does Ownership Structure Pay Attention to The Corporate Cash Policy? Evidence in Indonesia Firms

“…The testing result indicates a positive relationship between the market to book value and cash. It is consistent with the findings of Anderson & Hamadi (2016). Sales growth will increase the firm's cash amount by 2.9%.…”

“…The estimated speed of adjustment to optimal cash is 9.888%. The findings indicate that the speed of adjustment to optimal cash in Indonesia is quite low when compared to other countries, such as China, Belgium that ranges from 20% to 40% (Chang et al, 2015;Jiang & Lie, 2015;Anderson & Hamadi, 2016). The dynamic estimation model used fixed-effect cross-section specifications shows in Table 2.…”

“…The average cash in Indonesia is 5.8% -7%, Singapore is 14% -20%, Philippines are 14% -32%, Malaysia is 7% -17%, and Thailand is 8% -14% (Da Cruz, 2015). The company's cash will be lower in countries with weak legal protection, high insider control (Pinkowitz et al, 2006;Anderson & Hamadi, 2016;Duran et al, 2016). From various management perspectives, cash reflects the decision of the manager that influence by the structure of company ownership (Shipe, 2015;Duran et al, 2016).…”

“…In various perspectives, empirical studies, cash management, and the amount of cash reflect the manager's decision (Jiang & Lie, 2016;Duran et al, 2016;Anderson & Hamadi, 2016). Effective and efficient corporate governance can handle agency problems occurred by the excess cash.…”

What Do We Know About Corporate Cash Holdings? A Systematic Analysis

“…Agency incentives aim to discipline manager misbehavior regarding the efficient use of cash and to align managers and shareholders interests to enhance firm value (Anderson & Hamadi, ; Cheung, ; Dittmar et al, ; Dudley & Zhang, ; Louis, Sun, & Urcan, ; Nikolov & Whited, ; Deb et al, 2017). However, agency conflicts can have a relevant impact in cash holdings of corporations.…”