Two heads better than one? Strategic alliance and firms excess cash holdings

Abstract

Based on elaborated manually collected strategic alliance data on all Chinese listed companies from 2007 to 2020, we document that alliance membership is positively associated with future excess cash holdings. Compared with non-allied firms, alliance membership increases excess cash holdings by an average of RMB 128.86 million (or US$ 19.95 million). Cross-sectional tests show that this positive relationship is more pronounced among firms with more severe manager–shareholder agency problems, but weakened among those with better corporate governance and an improved institutional environment. We further find that foreign alliance partners trigger more excess cash holding, and that allied firms mainly increase their cash holdings by obtaining external equity and debt finance cash. Finally, we find that internal interests exploiting motivation entice managers to hold excess cash in the strategic alliances.