Abstract
We classify institutional investors into short-term and long-term based on their portfolio turnover and show that the positive relation between institutional ownership and firm cash holdings is mainly driven by short-term institutional investors. However, the relation between long-term institutional ownership and cash holdings is negative and less robust. The effect of both types of institutional ownership on cash holdings is amplified for growth firms compared to mature firms. Overall, our findings are consistent with the precautionary motive for holding cash but do not support the notion that institutional ownership mitigates the agency costs associated with cash holdings. JEL Classification: G32
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