Corporate Cash Holdings and Agency Conflicts

Jani, Elion; Hoesli, Martin; Bender, André

doi:10.2139/ssrn.563863

Cited by 21 publications

(53 citation statements)

References 26 publications

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“…But inverse relationship of MTB with corporate cash holdings is also reported in other studies (Jani et al, 2004;Bates et al, 2009), which corresponds to agency theory. Afza and Adnan (2007) study conducted in Pakistan indicated that the Cash holding and Market-to-book ratio of the firms are negatively related.…”

Section: Effect Of Industry Sector On Cash Holdingssupporting

confidence: 84%

Determinants of Corporate Cash Holding of Non-Financial Firms Listed on the Nairobi Securities Exchange

Barasa¹,

Achoki²,

Njuguna³

2018

IJBM

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A general rise in the cash holding levels by firms internationally in the recent years has led to an increase in interest in cash holding research as cash is an asset that typically yields low return. Empirical research has produced mixed results and often little research has been carried out on the subject in developing countries. This paper thus looks at the determinants of cash holding of 44 non-financial firms listed in Nairobi securities exchange (NSE) for the period 2002 to 2013 using secondary data in annual reports and financial statements. We test for trade off, pecking order and the free cash flow theories using correlational and non-experimental research design. The results of OLS with year and industry dummies and panel data models shows that there exists significant positive and negative relationship between cash holding and cash flow and leverage respectively and insignificant relationship between cash holding and market-to-book value and firm size. Interest rests were found to be a significant mediator of the relationship between cash holding and MTB, size, leverage and cash flow. Industrial sector of a firm's main activity influences its cash holding policies. This study adds to the frontier knowledge on the determinants of cash holding by helping managers decide on their firm's optimal cash holding while also serving to inform investors on whether portfolio managers are adopting the right cash holding practices.

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Section: Effect Of Industry Sector On Cash Holdingssupporting

confidence: 84%

Determinants of Corporate Cash Holding of Non-Financial Firms Listed on the Nairobi Securities Exchange

Barasa¹,

Achoki²,

Njuguna³

2018

IJBM

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“…Different studies which analyzed cash holdings and its determinants with reference to target level of cash holdings are consistent with studies on leverage (Jani et al, 2004). Frictionless capital market assumption makes holding cash by firms irrelevant.…”

Section: Review Of Prior Studiessupporting

confidence: 70%

“…Second motive of avoiding financial distress is consistent with motive of precaution (Bates et al, 2009). But inverse relationship of growth opportunities with corporate cash holdings is reported in numerous studies (Ferreira and Vilela, 2004;Jani et al, 2004;Bates et al, 2009), which corresponds to agency theory. Ferreira and Vilela (2004) reason that firms characterized by low growth opportunities may invest even in projects having negative net present value.…”

Section: Growth Opportunitiesmentioning

confidence: 77%

“…Ferreira and Vilela (2004) reason that firms characterized by low growth opportunities may invest even in projects having negative net present value. Entrenched management and poor growth prospects compel firms to hoard more cash for use; but during funds' raising these firms will tend to conceal detailed information from investors, disclosure of which is mandatory by regulatory authorities (Jani et al, 2004;Bates et al, 2009).this isin line with agency theory because in such cases cash is accumulated due to agency problems (Bates et al 2009). …”

Section: Growth Opportunitiesmentioning

confidence: 93%

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Corporate Cash Holdings and Adjustment Behaviour in Chinese Firms: An empirical Analysis Using Generalized Method of Moments

Rehman¹,

Wang²

2015

AABFJ

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This study is intended to find out the motives of cash holding in Chinese firms and theories associated with these motives. The study is unique because it not only estimates the adjustment speed of corporate cash holdings but also discuss several firm specific factors that affects cash holdings in Chinese firms with special reference to Chinese SOEs and NSOEs. An extensive set of panel data comprising 1632 A listed Chines firms, over a period from 2001 to 2013 are taken for analysis. The study reports a lower adjustment coefficient for Chinese firms compared to other developed nations. The study finds that target level of cash holdings in Chinese firms is better explained by Trade off and Pecking order theories. To cope with issues of endogeneity and serial correlation the study apply GMM and random effects model with an added AR (autoregressive) term. Keywords AbstractThis study is intended to find out the motives of cash holding in Chinese firms and theories associated with these motives. The study is unique because it not only estimates the adjustment speed of corporate cash holdings but also discuss several firm specific factors that affects cash holdings in Chinese firms with special reference to Chinese SOEs and NSOEs. An extensive set of panel data comprising 1632 A listed Chines firms, over a period from 2001 to 2013 are taken for analysis. The study reports a lower adjustment coefficient for Chinese firms compared to other developed nations. The study finds that target level of cash holdings in Chinese firms is better explained by Trade off and Pecking order theories.To cope with issues of endogeneity and serial correlation the study apply GMM and random effects model with an added AR (autoregressive) term. JEL Classification: M41, G34

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“…Hipotesis ke-4 didukung. Hasil penelitian ini mendukung hasil penelitian Jani et al (2004), Couderc (2005) dan Saddour (2006) yang menyatakan pengaruh leverage terhadap cash holding adalah negatif. Saddour (2006) menyatakan bahwa leverage yang besar menunjukkan kemudahan akses perusahaan ke pasar modal yang menyebabkan perusahaan dapat melakukan investasi dengan sumber pendanaan yang berasal dari hutang, sehingga semakin besar hutang perusahaan cukup menahan kas dalam jumlah yang kecil.…”

Section: Nilai Tunclassified