Local long-term institutions, growth and cash holdings

Abstract

We provide empirical evidence that support both "outcome" and "substitute" models of agency theories related to cash holding. Local long-term institutional investors are associated with lower excess cash in firms with less growth and easier access to external financing, and with higher excess cash in firms with higher growth in our U.S. sample.

The Moderator Effect of Institutional Ownership on the Relationship between Cash Holdings of Life-Cycle Stages: Evidence from Borsa Istanbul

“…The authors claim ownership structure is the only variable to explain the cash holdings behavior in firms with high market capitalization. In a similar study, Chang et al (2014) find that local institutional investors with long-term holdings reduce (increase) excess cash holding in firms with lower (higher) capitalization. Lin et al (2016) use a Chinese sample to identify that institutional ownership increases the value of excess cash holdings when the government is the controlling shareholder.…”

“…Corporate governance quality influences firms' cash holding behavior (Al-Najjar & Clark, 2017;Al-Hadi et al, 2020). Family, local, and foreign institutional ownership are corporate governance indicators, and there is diversified evidence about the ownership structure's effect on the firm's cash holdings behavior (Liu, 2011;Chang et al, 2014, Nguyen & Rahman, 2020 . Finance policies like dividend payment (Harford et al, 2008;Moin et al, 2020) and capital expenditures (Aǧca & Mozumdar, 2008) also affect a company's cash holdings.…”

“…The authors also state that firms with poor governance value decrease due to wrong investment decisions. Institutional ownership reduces agency costs by creating a monitoring system on the efficiency of spending excessive cash holdings and the effectiveness of investments (Nikolov & Whited, 2014;Chang et al, 2014;Chang et al, 2016;Al-Najjar & Clark, 2017;Loncan, 2018;). Faff et al (2016) suggest that life cycle theory presents a pattern of the firm characteristics of each life cycle stage.…”