Corporate Cash Holdings: An Empirical Investigation of UK Companies

Özkan, Aydın; Ozkan, Neslihan

doi:10.2139/ssrn.302313

Cited by 99 publications

(165 citation statements)

References 49 publications

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“…Combined, our findings suggest that US headquarters orchestrate cash holdings of their Chinese subsidiaries in line with subsidiary innovation and knowledge transfer capabilities. Finally, scholars argue that effective boards are likely to experience a reduction in the agency costs of external finance, which implies a negative relation between board effectiveness and corporate cash holdings (Belghitar & Khan, 2013;Chen & Chuang, 2009;Harford, Mansi, & Maxwell, 2008;Ozkan & Ozkan, 2004). 1 However, we observe the opposite relationship in the foreign subsidiary context.…”

Section: Introductionmentioning

confidence: 52%

“…Size in this study is measured by the natural logarithm of the subsidiary's total assets. Second, prior studies demonstrate a negative relation between corporate cash levels and financial leverage (Ferreira & Vilela, 2004;García-Teruel & Martínez-Solano, 2008;Kim et al, 1998;Opler et al, 1999;Ozkan & Ozkan, 2004). Firms can use borrowing as a substitute for holding cash when firms have access to debt (John, 1993).…”

Section: Variable Definitionsmentioning

confidence: 99%

“…Corporate cash holdings have traditionally been explained by transaction cost motives and precautionary motives. The transaction cost motive suggests that cash holdings help firms to meet the needs that come from firms' normal business operations and can save on transaction costs of raising funds externally (Miller & Orr, 1966;Mulligan, 1997;Kim et al, 1998;Opler et al, 1999;Ozkan & Ozkan, 2004). The precautionary motive states that a firm can use cash to finance its activities in the presence of unforeseen contingencies (e.g., when other sources of funding are not available or are excessively costly) (Bates et al, 2009;Han & Qiu, 2007).…”

Section: Motives For Cash Holdings Cash Holdings In Standalone Firmsmentioning

confidence: 99%

“…One of these monitoring devices is the use of the board of directors in foreign subsidiaries. In standalone firms, evidence shows that the effectiveness of the board of directors provides better shareholder protection and thus reduces the agency costs of cash holdings (Chen, 2008;Opler et al, 1999;Ozkan & Ozkan, 2004;Pinkowitz et al, 2006). In the context of MNCs, boards of directors in foreign subsidiaries can monitor and control subsidiary managers on behalf of the headquarters.…”

Section: Subsidiary Capabilities Monitoring Devices and Cash Holdingsmentioning

confidence: 99%

“…Prior research on cash holdings in standalone firms suggests that firms hold cash for a transaction cost motive (Kim, Mauer, & Sherman, 1998;Miller & Orr, 1966;Mulligan, 1997;Opler, Pinkowitz, Stulz, & Williamson, 1999;Ozkan & Ozkan, 2004) and a precautionary motive (Bates, Kahle, & Stulz, 2009;Han & Qiu, 2007). In addition, strategy scholars view cash as a strategic asset that enables firms to pursue innovations and respond to environmental uncertainty (George, 2005;Kim & Bettis, 2014;O'Brien & Folta, 2009).…”

Section: Introductionmentioning

confidence: 99%

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Determinants of Cash Holdings in Multinational Corporation's Foreign Subsidiaries: US Subsidiaries in China

Beuselinck¹,

Du²

2016

Corporate Governance

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Manuscript Type Empirical Research Question/Issue We examine determinants of cash holdings in Chinese subsidiaries of US multinational corporations (MNCs), a setting where growth opportunities make cash holdings desirable for investment opportunities but also vulnerable to potential expropriation because of poor investor protection. Research Findings/Insights We show that headquarters accumulate larger cash holdings in foreign subsidiaries with locally registered patents and in foreign subsidiaries operating in the same industry as corporate headquarters. Further, foreign cash holdings are higher when these are safeguarded by a subsidiary board. Moreover, the effect of shared industry on subsidiary cash holdings is larger when a board is installed in the subsidiary. Finally, the positive relation between a subsidiary's capability to innovate and to transfer knowledge and its level of cash holdings is stronger when the subsidiary is led by US expatriate CEOs. Theoretical/Academic Implications Our results indicate that MNCs accumulate cash in foreign subsidiaries with innovation and knowledge transfer capabilities. Furthermore, and in line with agency theory, we find that MNCs safeguard foreign cash via the installing of subsidiary boards and expatriate CEOs. These findings suggest that the installing of monitoring devices are crucial in reducing the potential expropriation risk of foreign cash holdings. Practitioner/Policy Implications Our study highlights the importance of considering foreign subsidiaries' positions in innovation and in knowledge transfer when MNCs make decisions on the levels of overseas cash holdings. It offers insights regarding the importance of subsidiary boards and expatriate CEOs in monitoring and controlling foreign subsidiaries.

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Section: Introductionmentioning

confidence: 52%

Section: Variable Definitionsmentioning

confidence: 99%

Section: Motives For Cash Holdings Cash Holdings In Standalone Firmsmentioning

confidence: 99%

Section: Subsidiary Capabilities Monitoring Devices and Cash Holdingsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Determinants of Cash Holdings in Multinational Corporation's Foreign Subsidiaries: US Subsidiaries in China

Beuselinck¹,

Du²

2016

Corporate Governance

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Financial flexibility, corporate investment and performance: evidence from financial crises

Arslan‐Ayaydin

Florackis

Özkan

2013

Rev Quant Finan Acc

Self Cite

157

109

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This study examines the impact of financial flexibility on the investment and performance of 1,068 East Asian firms over the period 1994-2006. We show that firms can attain financial flexibility, primarily through conservative leverage policies and less commonly by holding large cash balances. Financial flexibility appears to be an important determinant of investment and performance, mainly during the 1997-1998 crisis. In particular, firms that are financially flexible prior to the crisis (i) have a greater ability to take investment opportunities, (ii) rely much less on the availability of internal funds to invest, and (iii) perform better than less flexible firms during the crisis. Our analysis covering the post crisis period does reveal any important investment differentials between flexible and inflexible firms. Finally, we provide evidence that financial flexibility is more likely to play a decisive role in determining corporate investment and performance than traditional measures of financial constraints (e.g. firm size, dividend payout, firm age and business group affiliation) during abnormal periods of the economic cycle.

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Firms cash management, adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis

Amin

Williamson

2020

Rev Quant Finan Acc

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We investigate the firms' specific attributes that determine the difference in speed of adjustment (SOA) towards the cash holdings target in the Scandinavian countries: Denmark, Norway and Sweden. We examine whether Scandinavian firms maintain an optimal level of cash holdings and determine if the active cash holdings management is associated with the firms' higher SOA and lower adjustment costs. Our findings substantiate that a higher level of off-target cost induces professional managers to rebalance their cash level towards the optimal balance of cash holdings. Our results reveal that Scandinavian firms accelerate SOA towards cash targets primarily for the precautionary motive. Moreover, our results show that SOA is heterogeneous across Scandinavian firms based on adjustment cost and deviate cash holdings towards the target mainly with the support of internal financing. Furthermore, our empirical findings show that the SOA of Norwegian firms is significantly higher than the Danish and Swedish firms.

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Corporate Cash Holdings: An Empirical Investigation of UK Companies

Cited by 99 publications

References 49 publications

Determinants of Cash Holdings in Multinational Corporation's Foreign Subsidiaries: US Subsidiaries in China

Determinants of Cash Holdings in Multinational Corporation's Foreign Subsidiaries: US Subsidiaries in China

Financial flexibility, corporate investment and performance: evidence from financial crises

Firms cash management, adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis

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