The impact of political connections and business groups on cash holdings: Evidence from Chinese listed firms

Lin, Tsui-Jung; Chang, Hai-Yen; Yu, Hui-Fun; Kao, Ching-Pao

doi:10.1016/j.gfj.2018.10.001

Cited by 21 publications

(13 citation statements)

References 39 publications

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“…This result is consistent in an international sub-sample of politically connected firms in eight (8) emerging markets or countries with high levels of corruption (Kusnadi, 2019). Conversely, single country studies in China and Pakistan document that agency problems lead to cash hoarding in firms that have political connections (Lin, Chang, Yu, & Kao, 2019;Saeed, Belghitar, & Clark, 2014). In the context of local assemblies, we argue that, although, cash holding is a function of agency problems (Core et al, 2006;Gore, 2009), there should be little or no conflict of interest or competing interest between the two main political actors (i.e., the CEO and member of parliament (MP)) of local assemblies that have political connections to the central government through party affiliation because of their quest to stabilize their regime and keep them in power.…”

Section: Introductionsupporting

confidence: 52%

“…The few studies conducted in emerging economies suggest that agency problems lead connected firms to accumulate large amount of cash. Lin et al (2019) investigate the impact of political connections on the cash holdings of firms listed on Chinese stock exchanges. They apply panel data regression analysis and find political connections to be positively correlated with cash holdings.…”

Section: 2political Connections and Cash Holdingsmentioning

confidence: 99%

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Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies

et al. 2021

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We examine the relationship between elections, political connections, and cash holdings in Ghanaian local assemblies. Using a panel dataset of 179local assemblies over a period 2012 to 2017, a panel regression and the generalized method of moments estimation techniques was employed for the analysis. We find that local assemblies hold less cash during election years, which suggests that election may be one of the potential factors to mitigate agency conflict in weak governance environment. Further, we demonstrate that local assemblies that have political connections hold less cash; however, political uncertainty makes these entities conducive to agency problems than their non-connected peers because they hold more cash. Additional analysis indicates that one year prior to elections, managerial conservatism kicks-in and leads managers to hold more cash in local assemblies that have political connections, which continues and becomes more pronounced in election years. Our results have implications for regulations on the cash management practices of local assemblies.

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Section: Introductionsupporting

confidence: 52%

Section: 2political Connections and Cash Holdingsmentioning

confidence: 99%

Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies

et al. 2021

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“…On the one hand, cash holdings may serve shareholders' interests by generating financial flexibility, reducing transaction costs and financing growth opportunities with lower-cost internal funds (Kusnadi, 2019). On the other hand, the firm's management can also use excess cash to purchase perks and tunnel corporate cash reserves to serve their personal interests (La Rocca et al, 2017;Lin et al, 2019;Seifert and Gonenc, 2018). Hence, managers need to consistently decide whether to disgorge cash to shareholders, spend it internally, expend it on external acquisitions or continue to hold it (Harford et al, 2008).…”

Section: Introductionmentioning

confidence: 99%

“…It is worth noting that while there is a rich literature on this topic, most of the prior studies focused on developed markets. The number of studies that have examined the relationship between cash holdings and firm performance in emerging markets remains limited (Al-Najjar and Clark, 2017;Lin et al, 2019). This research examines the impact of corporate cash holdings on firm performance in Middle East and North African (MENA) emerging markets.…”

Section: Introductionmentioning

confidence: 99%

Corporate cash holdings, firm performance and national governance: evidence from emerging markets

Jabbouri¹,

Almustafa²

2020

IJMF

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PurposeThis paper aims to document the impact of corporate cash holdings on firm performance in Middle East and North African (MENA) emerging markets. The authors also examine how the quality of national governance shapes the interaction between corporate cash holdings and firm performance.Design/methodology/approachThe authors employ data from non-financial firms listed on the stock markets of twelve MENA countries between 2004 and 2018. The empirical model avoids the shortcomings of the prior literature by applying a dynamic framework to the relationship between cash holdings and firm performance.FindingsThis research reports a significant positive relationship between corporate cash holdings and firm performance. The results appear to be more pronounced in countries with strong national governance and more developed institutional settings. The findings demonstrate that most benefits of corporate cash holdings can be achieved under strong institutional settings. The authors argue that the positive impact that national governance has on individual firms by reinforcing investors' protection and lowering agency problems increases the added value of cash holdings.Practical implicationsThe findings should encourage local authorities and policymakers to reinforce the law and instigate new regulations to strengthen the quality of national governance and restore the integrity of local markets.Originality/valuePrior studies have largely been silent on how national governance can shape the relationship between corporate cash holdings and firm performance. This paper draws attention to this issue within the context of MENA emerging markets. To the authors' best knowledge, this is the first study that explores the interaction between cash holdings, firm performance and national governance in MENA emerging markets.

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“…These companies put. These companies also welcome this two-way interaction as they seek opportunities to grow or improve their current situation [28].…”

Section: Political Connectionmentioning

confidence: 99%

The relationship between management ability and investment opportunities with an emphasis on the role of political connection

Nouri

2021

IJIMES

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With the expansion of the quality level of activity as well as the widespread development of economic affairs, financial and investment decisions are among the most complex issues that arise in order to obtain the best return and desirability in the best conditions. In this regard, financial managers, given the primary responsibility for these decisions, seek to establish relationships between the factors of the firms in the firm, including investment opportunities. The purpose of this paper is to examine the relationship between management ability and political connection with investment opportunities. The QT ratio and market to book ratio (MTB) are used to measure corporate investment opportunities. Methodology: Corporate political connection is defined by Fasio's political cost variables and the use of the TOPSIS multi-criteria decision-making models and the Shannon entropy weighting method. In order to test the hypotheses, 116 companies listed in Tehran Stock Exchange during the period 2014-2019 were selected for the sample. Findings: The results of the analysis using the generalized least squares hybrid regression (GLS) method indicate that there is a significant and positive relationship between management ability and investment opportunities in Tehran Stock Exchange companies. There is a negative and significant relationship between political connection and investment opportunities. The political connection also does not affect the relationship between management ability and investment opportunities. Originality/Value: The purpose of this paper is to examine the relationship between management ability and political connection with investment opportunities. The QT ratio and market to book ratio (MTB) are used to measure corporate investment opportunities.

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The impact of political connections and business groups on cash holdings: Evidence from Chinese listed firms

Cited by 21 publications

References 39 publications

Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies

Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies

Corporate cash holdings, firm performance and national governance: evidence from emerging markets

The relationship between management ability and investment opportunities with an emphasis on the role of political connection

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