Political Stability, Board Tenure, and Corporate Cash Holding

Abstract

This paper investigates whether board tenure is associated with corporate cash holding and whether country-level political stability moderates the effect of board tenure on corporate cash holding. Using 16,351 firm-year observations across 39 countries, our main results show that firms with higher average board tenure exhibit lower cash holding. Furthermore, strong political stability mitigates the negative relationship between the average board tenure and corporate cash holdings. Our results are robust to various specifications, including endogeneity issue, weighted least-square regression, global financial crisis effect, and alternative measures for corporate cash holding and country-level institutional factors. Overall, our results imply the need to strengthen the institutional environment, given that countries with stable politics are those with incentives for the board to function effectively.