Ownership structure and corporate liquidity policy

Abstract

This study analyzes the relationship between corporate liquidity (i.e. the fraction of assets invested in cash and marketable securities) and managerial ownership in the firm's stock. We postulate a negative relationship between excess liquidity and managerial stock ownership as the managers' interests shift from protecting the value of their human capital to maximizing the value of their stockholdings. This managerial behavior is constrained by the disciplining forces of the firm's product market structure and the market for corporate control. While the tests fail to reveal any significant impact of managerial stock ownership, they show that firm liquidity is positively related to the firm's ability to earn economic rents.

Belgian Intragroup Relations and the Determinants of Corporate Liquid Reserves

“…This result confirms findings of Baskin (1987), Papaioannou et al (1992), John (1993), Kim et al (1998), Schnure (1998) and Opler et al (1999).…”

“…The significant relationship between the CCC and cash confirms the findings of Papaioannou et al (1992), John (1993), Lyn and Papaioannou (1996) and Kim et al (1998). Opler et al (1999) find a significant negative relationship between cash and net working capital minus cash, which is comparable to the CCC.…”

Alignment or entrenchment? Corporate governance and cash holdings in growing firms

“…In addition to VC ownership, the ownership variables include CEO ownership (CEOOwn) and nonexecutive-director ownership (nonExeDirOwn). The former is the percentage of CEO shareholdings (Dittmar et al, 2003;Papaioannou et al, 1992), and the latter is the percentage of shares in the hands of nonexecutive directors. The degree of nonexecutive-director ownership is a proxy for independency.…”

“…Holding cash assets is a matter of managerial discretion, and turning excess corporate cash into personal benefits is less costly to managers than transferring other assets to private benefits (Myers and Rajan, 1998;Papaioannou et al, 1992). Managers thus have a strong incentive to hold more cash.…”

Corporate cash holdings: Evidence from Switzerland

“…These results contradict previous findings for U.S. firms. In an early study PAPAIOANNOU et al (1992) conclude that there is no significant influence from managerial ownership on U.S. firms' cash holdings. OPLER et al (1999) document only a marginal impact from managerial ownership on the amount of cash holdings of U.S. firms.…”