The interplay of judicial efficiency and ownership structure: implications for cash holdings in pyramidal firms in emerging economies

This research focuses on the behavior of cash holdings of business group-affiliated firms in Indonesia from 2004 to 2013. We find that business group-affiliated firms hold more cash than that of stand-alone firms. Size of business group, cash holdings of other firms in the same business group, age of the business group, and the degree of diversification of business group have a positive influence on cash holdings of the business group-affiliated firms. However, the correlation of growth opportunities among the same group-affiliated firms has limited effects on the cash holdings of the firm.

CASE M. SPRENKLE (1969), in a refreshing departure from elasticitygrubbing that constitutes most empirical work on money demand, examined predicted vs. reported levels of cash holdings in firms, using equation derived by Baumol (1952) and Tobin (1956) as his predictor. Sprenkle concluded that compensating balance requirements, and not asset management decisions taken to cover transaction needs, are most important data in explaining amount of cash held by business firms. In this note, I argue that his results do not support his claim of showing the uselessness of transaction demand models. Rather, they stem from (a) inadequacy of Baumol-Tobin (B-T) model as a representation of cash flows, and (b) irrelevance of cash balance data contained in financial reports to empirical research on money holdings. I also show that Sprenkle's heavy reliance on importance of compensating balances is misplaced. II. TRANSACTIONS DEMAND MODELS AS PREDICTORS He sets out to show little . . . [the B-T model] . . . really explains, how subject to error results of theory are, and how fruitless more sophisticated versions of theory are apt to be. He shows that model does a poor job of predicting level of cash holdings in large business firms, and concludes with obiter dictum that compensating balances determine levels of business cash holdings. The Baumol-Tobin model depicts cash flow as a sequence of k receipts per year, each one being followed by a steady stream of payments which just exhaust it. That representation is a priori unreasonable. A large part of any firm's cash transactions are with other firms, so few firms, if any, can show cash flow pattern assumed in B-T model. Also, direct evidence from a few firms shows a random mixture of odd-sized daily net receipts and payments. In those observed cases, running mean of daily cash activity rapidly converges to a value close to zero; daily flows have no significant underlying periodicity, and certainly no trend or drift.' The B-T model, by contrast, assumes that cash account level is extremely periodic, if it is left unadjusted. * NSF research support is gratefully acknowledged. This note is a spin-off from a longer paper that has been presented before several helpful audiences. Thanks are owed to R. Clower, M. Darby, J. Kindahl, A. Leijonhufvud, L. Meyer, R. Schmalensee, C. Sprenkle, and Jack M. Guttentag, for useful comments. The usual disclaimer on sources of error applies. ** Professor of Economics, University of California, San Diego. 1. One day is ideal interval at which to observe cash flows, since returns on short-term securities can be realized on a daily basis, and banks monitor demand deposit accounts of their customers once per day.

In the paper, we examine the relationships between corporate governance mechanism and cash holdings to determine whether family firms with lower agency costs have smaller cash holdings, compared with non-family firms. We find that family firms are more inclined to haver smaller cash holdings, whereas non-family firms lead to entrenched managers having more cash holdings. Foreign investors are found to have no impact on the firm's cash holdings.

Uncertainty of uncertainty and firm cash holdings

PurposeThe purpose of the present study is to discuss the combined effect of predation risk and firms' market power on cash holdings.Design/methodology/approachThe authors tested hypotheses by using consolidated financial data in Japanese firms.FindingsThe authors find that firms' cash holdings increase with a rise in predation risk faced by firms. However, the higher the firm's market power, the weaker the above interplay becomes. Moreover, the authors find that even when firms' investments are decreased at the industry level, firms with larger cash holdings seek to mitigate predation risk by funding strategic investments with the potential to steal rivals' market share.Originality/valueThe authors recognize the importance of a firm's market power. Take a firm's market power into consideration to analyze the mechanism of a firm's cash holdings, there is a possibility that the mechanism of a firm's cash holdings as presented by the previous studies will be changed.

Purpose During periods of heightened economic uncertainty, firms tend to accumulate more cash due to a precautionary motive. Firms belonging to different ownership groups may vary in their access to sources of finance. Consequently, their response to economic uncertainty could differ. We contribute to the literature by studying the differential impact of economic uncertainty, both global and domestic, on the cash holdings of firms across ownership groups. Design/methodology/approach We create a matched sample of 1,566 firms from the Indian manufacturing sector using Coarsened Exact Matching (CEM). The time period of the study is 2000–2022. We use fixed effects panel regression for the analysis. Findings We find that the increase in cash holdings of foreign firms is higher than that of other firms when there is greater global economic policy uncertainty. In contrast, for domestic economic policy uncertainty, firms affiliated with business groups increase cash holdings at a higher rate than other firms. Similar finding for firms that are financially constrained suggests that the increase in cash holdings may arise from precautionary motives. Practical implications This study enhances our understanding of firm decision-making during times of economic uncertainty. Policy response to economic shocks can be tailored to suit the nature of the uncertainty and the ownership group that requires support. Originality/value Our study examines the response of firms belonging to different ownership groups to global and domestic economic uncertainty. Additionally, we analyse financial constraints as a channel for the cash holding behaviour of firms.

The study was conducted to find out the family control on firm cash holding. The study was conducted in the non financial sector of Pakistan. 100 non financial firms were selected for the data collection. The data was collected from the annual reports of the list firms from 2008 to 2013. Family ownership, board size, net working capital and firm size are the independent and cash holding as dependent variable of the study. Panel data regression was used in the current study for the data analysis. As per the results of fixed effect model as recommended by the hausman test; 1) Family ownership has positive and significant effects on firm cash holdings; 2) Board size has positive and insignificant effects on firm cash holdings; 3) Net working capital has negative and insignificant effects on firm cash holdings and 4) Firm size has negative and significant effects on firm cash holdings.

The aim of the study was to examine the impact of corporate governance practices on firm's cash holdings of listed manufacturing companies in Sri Lanka, using panel data extracted from the financial statements of the companies listed on Colombo Stock Exchange. Corporate governance practices of Sri Lankan listed manufacturing companies were measured by board independence, board size, CEO duality, audit committee meetings and audit committee members, cash holdings were measured by percentage of cash and cash equivalents on total assets and also leverage and firm size were considered as control variables. Data were collected from 26 listed manufacturing companies over a five years period of 2011-2015. Pooled Ordinary Least Square, Fixed Effect and Random Effect models were performed using STATA to explore the best model for the impact of corporate governance practices on firm's cash holdings. Results of the study revealed that fixed effect model was the best model with the evidence of Hausman specification test. According to the fixed effect model, CEO-duality and leverage had significant negative impact on cash holdings while audit committee meetings and firm size had positive impact on cash holdings of the listed manufacturing companies in Sri Lanka. Board independence, board size and audit committee members did not show any significant impact on cash holdings. Findings of the study may be useful to practitioners to identify the effects of corporate governance practices on firm's cash holdings.

 Abstract—This paper tests the relationship between business group characteristics and corporate cash holdings for business group-affiliated firms listed on the Taiwan Stock Exchange and in the Over-The-Counter market from 2000 to 2009. Specifically, this paper employs group affiliation, group diversification, group ownership holdings, and group listed numbers as business group characteristic variables. The empirical results reveal that group-affiliated firms hold more cash than non-affiliated firms. Besides, the results show that more highly-diversified groups, groups with more stock ownership holdings, and groups with fewer listed firms hold lower cash balances. Business groups play a prominent role in economic development in Taiwan. According to the investigative report on business groups in Taiwan provided by China Credit Information Service (CCIS), Ltd., the employment of the top 100 business groups accounted for about 11% of the Taiwanese employed population in 2009. Compared with their stand-alone counterparts, business group-affiliated firms are more likely to acquire financial capital from an efficient business environment because the business groups act as a social network that offers benefits to their affiliates and resolve the problems that arise from the imperfections in the emerging markets (1). Nevertheless, Yeh and Woidtke (2) indicate that business groups in Taiwan are characterized by their relatively weak protection of minority shareholders. Kusnadi (3) shows that those managers in firms with a pyramidal group ownership structure are inclined to accumulate cash balances, and the presence of a pyramidal ownership structure in firms could lead to an entrenchment effect and therefore an increase in agency costs. Previous studies on business groups have analyzed the relationship between business group affiliation and group- affiliated firms' performance, innovation, and leverage policies (4), (5), (6), (7). However, little attention has been directed to addressing business group characteristic effects on the cash holding decisions of group-affiliated firms. Corporate cash holdings play an important role in a firm's assets and operating activities. Firms' cash holdings have received much attention from corporate managers, investors,

CEO organizational identification and firm cash holdings

The psychological factors of senior executives have an important impact on the firm’s financial policies. In this paper, we investigate the association between CEO risk-taking entrepreneurial spirit and firm cash holdings, and find that firms with higher CEO risk-taking entrepreneurial spirit have less cash holdings. Further, we find that financing constraints can mitigate the negative association between CEO risk-taking entrepreneurial spirit and firm cash holdings, whereas financing needs enhances the association between them. Mechanism test illustrates that CEO risk-taking entrepreneurial spirit affects firm cash holdings through corporate investment. Finally, the results reveal that CEO risk-taking entrepreneurial spirit not only promotes the value of cash holdings, but also is significantly positively associated with both accounting performance and market performance. Our findings shed lights on the impact of executive psychological factors on financial decisions and have important implications for cash-holding decisions of listed firms.

Corporate Tax Avoidance and the Level and Valuation of Firm Cash Holdings

This study examines the influence of three forms of uncertainties (firm-specific, market-based, and economic policy uncertainty) on corporate cash holdings in China, particularly considering the moderating role of firms’ ownership structure, financial constraints, and trade credit. Using an annual panel dataset from 2003 to 2023 of A-share listed manufacturing firms on the Shanghai and Shenzhen Stock exchanges, we find that firm cash holdings are positively affected by all forms of uncertainties. The results further show that private and financially constrained firms are positively, while access to trade credit negatively moderates this nexus. Robustness checks, including alternative measures of cash holdings, fixed effect model, and GMM, confirm the validity of the results. The findings contribute to the corporate finance literature by emphasizing the distinct effects of ownership, financial constraints, and access to trade credit in uncertain economic situations. The results offer valuable insights to managers, policymakers, and investors. JEL Classification: D22, D81, G32

This study is intended to find out the motives of cash holding in Chinese firms and theories associated with these motives. The study is unique because it not only estimates the adjustment speed of corporate cash holdings but also discuss several firm specific factors that affects cash holdings in Chinese firms with special reference to Chinese SOEs and NSOEs. An extensive set of panel data comprising 1632 A listed Chines firms, over a period from 2001 to 2013 are taken for analysis. The study reports a lower adjustment coefficient for Chinese firms compared to other developed nations. The study finds that target level of cash holdings in Chinese firms is better explained by Trade off and Pecking order theories. To cope with issues of endogeneity and serial correlation the study apply GMM and random effects model with an added AR (autoregressive) term.

Firm cash holdings and CEO inside debt