Corporate Cash Research Articles

Political Favoritism and Value of Corporate Cash Holdings

ABSTRACTThis paper examines the impact of political favoritism on the value of corporate cash holdings. We define stock ownership by a member of the US Congress as a measure of political favoritism to a firm. We hypothesize that political investment in a firm influences the value of cash holdings. Consistent with our hypothesis, this study finds cash holding, on average, is less valuable for politically favored firms. Economically, political favoritism is associated with a decrease of $0.44 in value for a $1.00 cash holding. We also find that political favoritism negatively affects cash value in financially unconstrained firms, which is consistent with the overinvestment hypothesis. The results are robust to controlling for many firm‐level characteristics and a spectrum of robustness tests. This study extends the literature on the role of political economy in the value of corporate cash holdings by documenting political favoritism as the stock ownership of the US Congress members and evaluating its effect on the value of corporate cash holdings.

Impact of fund cliques on corporate cash dividends: Evidence from China

Utilizing 2007–2021 data on Chinese A-share listed companies, this study explores how fund cliques affect corporate cash dividends. The results reveal that fund cliques can significantly reduce corporate cash dividends. This conclusion is verified after addressing possible endogeneity concerns and conducting a series of robustness tests. Mechanism tests indicate that ownership concentration and agency cost are the primary channels. The results further show that the negative effect of fund cliques on cash dividends is more significant in larger firms, as well as in firms that have lower regional investor protection and greater media attention. Furthermore, we find that fund cliques can significantly increase corporate stock dividends, and the reduction of cash dividends promotes fund cliques’ share lessening, from which funds can obtain higher share returns. This study has some implications for protecting shareholder rights and maintaining capital market stability.

From commitment to capital: does environmental innovation reduce corporate cash holdings?

ABSTRACT Using 7066 firm-year observations of the US-listed firms for the period of 2008–2021, we examine a channel through which eco-innovation affects Corporate Cash holding. More specifically, we modeled the role of goodwill between eco-innovation and Corporate Cash holding. Using a random effect regression model, we show the economically relevant and statistically significant negative impact of eco-innovation on firm-level cash holdings. We provide evidence that goodwill fully mediates the relationship between eco-innovation and cash holdings. Our analyses further document that the impact of eco-innovation on firm-level cash holdings is more pronounced for the firms that operate in environmentally insensitive industries. The influence of eco-innovation on cash holdings is less for low-size firms relative to the high size and more for highly leveraged firms. The results are robust for alternative measures of eco-innovation, selection biases and potential endogeneity. The findings have imperative implications for stakeholders’ engagement from a social capital perspective.

Litigation risk and corporate cash holdings: The moderating effect of CEO tenure

Cash holdings represent a crucial decision that can affect the efficiency of a firm's cash usage and, ultimately, shareholder value. Taking advantage of a comprehensive sample of China's A-share listed companies from 2012 to 2022, this research examines the relationship between litigation risk and corporate cash holdings. In line with the precautionary motive, we discover robust evidence that litigation risk is positively correlated with corporate cash holdings. Moreover, we document that the positive relationship is more pronounced for firms with long-tenured CEOs, as they are more risk averse. Our findings are robust to a series of sensitivity analyzes. Overall, this study contributes to the literature on litigation risk and corporate cash holdings, and generates valuable practical implications for investors, managers, and policymakers.

Dynamics of Corporate Finance Research in Global Scientific Literature

This study explores the dynamics of corporate finance research in global scientific literature from 2000 to 2024 using a bibliometric approach. By analyzing keyword co-occurrence and citation data, the research identifies key themes, emerging trends, and influential contributors in corporate finance. Core topics such as capital structure, cost management, and debt remain central, reflecting traditional corporate finance priorities. However, newer areas, including corporate social responsibility (CSR), corporate cash holdings, and behavioral finance, have gained prominence, signaling a shift towards integrating non-financial factors into corporate strategies. The study also highlights the lasting impact of global financial crises, particularly the 2008 crisis, on shaping research in financial distress, risk management, and institutional roles. These insights provide a comprehensive overview of the evolution of corporate finance research and offer directions for future studies.

Does culture matter in corporate cash holdings?

AbstractThis paper identifies culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as the setting. We find that firms located in regions with stronger Confucian culture hold persistently higher levels of cash. We employ an instrumental variable to draw causal inference. Confucian culture strengthens the effect of cash flow risk on cash holdings of financially‐constrained firms, suggesting precautionary motives as the underlying mechanism. We find that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives. Lastly, firms' operating performance indicates that high cash holdings is an efficient outcome.

Non-arm's-length transactions, offshore financial centres, transfer pricing agreements and corporate cash holdings: Evidence from U.S. multinational corporations

This paper examines the association between non-arm's-length transactions, the existence of offshore financial centres, the existence of a transfer pricing agreement and corporate cash holdings for a large sample of U.S. multinational corporations over the 2006–2020 period. This study provides evidence that the existence of non-arm's-length transactions and of offshore financial centres increased the level of corporate cash holdings. In contrast, the existence of a transfer pricing agreement reduces the level of firm cash holdings. Overall, these results suggest that development of transfer pricing agreements with taxing authorities reduces multinational corporations' incentives and capacity to shift profits from higher- to lower-tax countries. These results remain robust to alternative specifications of cash holdings and endogeneity tests.

Bank Branches Expansion and Corporate Cash Holdings: Evidence from the Distribution of Bank Branches in China

ABSTRACT Using the geographical distribution data of banks’ physical branches at micro-firm level, this paper investigates the impact of bank branches expansion on corporate cash holdings. We find that the more the number of bank branches around firms, the less corporate cash holdings, implying that bank branches expansion helps reduce the level of corporate cash holdings. And the negative effect is more prominent in small-sized firms and non-SOEs. Further mechanism tests show that bank branches expansion reduces cash holdings mainly through intensified bank competition and shortening the geographical distance between bank and firm. We also find that bank branches expansion speeds up the dynamic adjustment to the target level of corporate cash holdings and mitigates agency problems. Our study highlights the crucial role played by the geographical distribution of bank branches in shaping corporate financial decisions and provides important policy implications for banking sector reform.

Corporate Cash Holdings and Advertising Spending After the Financial Crises

This paper examines the link between a firm’s characteristics and advertising budget allocation. It also shows the firm’s behavior after the Asian financial crisis and the American subprime mortgage crisis. Results show that crises can significantly impact management decisions. They can influence how multinational companies plan for their future. The study also identifies the macroeconomic factors that can influence a firm’s decision to allocate funds.

How does board gender diversity drive the ESG performance‐cash holdings relationship? Evidence from China

AbstractThis study investigates the influence of board gender diversity on the relationship between environmental, social, and governance (ESG) performance and corporate cash holdings in Chinese A‐share listed companies from 2015 to 2022. Our research shows that ESG performance is positively associated with cash holdings. Drawing on critical mass theory, the study finds a moderating effect of board gender diversity in the relationship between ESG performance and the cash‐holding relationship. Specifically, the study finds a negative relation between ESG performance and cash holdings with the presence of a single female board member. However, this relationship shifts to a highly positive association when three or more female directors are on the board, underscoring the significant impact of gender diversity. Further heterogeneity analysis reveals that firms with a younger age profile and a strong commitment to green innovation exhibit a negative relationship between ESG performance and cash holdings. These findings highlight the complex and dynamic nature of the ESG performance‐cash holdings relationship, which varies according to specific firm characteristics. Overall, this study offers valuable insights into the multifaceted dynamics of ESG factors, enhancing our understanding of their impact on corporate financial strategies.

Corporate “dash-for-cash” amidst the Covid-19 Pandemic: Evidence from an Emerging Economy

This paper seeks to examine the impact of Covid-19 pandemic on corporate cash holding. The research collects data from 531 listed Vietnamese firms for the period 2020Q1-2021Q1. The data are analyzed using panel Fixed Effect model. Results show that corporations hoard more cash in response to the Covid-19 pandemic. This can be attributed to firms’ precautionary purpose and investment delays to a limited extent. Firms’ increased cash holdings are channeled through conservative payout policy. The results further reveal that hoarding cash amid the pandemic alleviates the adverse impacts of the Covid-19 outbreak on investment. Previous studies identified various determinants that affect firms’ cash holding. Our study adds another critical factor, a rare disaster, as an important determinant of corporate cash policy.

Does CFO Gender Matter in Corporate Cash Holdings? Evidence from an Emerging Country

ABSTRACT This study examines whether CFO gender is associated with corporate cash holdings in the context of China, one of the largest emerging market countries. We find that firms with female CFOs have more cash holdings than those with male CFOs. Next, we find that the positive relationship between female CFOs and cash holdings is less pronounced in firms with high financial leverage than those with low financial leverage. We further find that the negative moderating effect of financial leverage on the relationship between female CFOs and cash holdings is stronger for firms with a lower presence of female board members. Our main result is robust to an alternative measure of cash holdings and endogeneity concerns. This study provides meaningful implications for developing and emerging market countries by elucidating the relationship between female CFOs and cash holdings. The empirical evidence can also help shareholders and bondholders better understand the female CFO—cash holdings nexus in light of financial leverage and the presence of female board members.

Subordinate executives’ horizon and cash holdings

This study investigates whether internal governance stemming from subordinate executives' employment horizons affects corporate cash holdings. Consistent with the idea that key subordinate executives provide checks and balances within a firm and affect corporate decisions, we find cash holdings increase with subordinate executives' horizon, supporting the precautionary motive for the former. Controlling for alternative explanations, the positive association between internal governance and cash holdings is hardly affected by the agency motive, tournament incentives between CEO and subordinate executives or confidence level of executives. Our findings are also robust to alternative measures of subordinate executives' horizon and cash holdings and are not driven by endogeneity issues. The analysis of cash sources documents that firms with longer subordinate executives’ horizon save a higher proportion of cash proceed through reduced dividend payouts and equity issuance, rather than debt. This study contributes to the literature by shedding light on how diverse agents with different employment horizons in the top management team influences the liquidity policy of the firm.

Empowered minority shareholders and corporate cash dynamics: Empirical evidence from China's online voting reform

This study examines whether enhanced minority shareholder voting influences corporate liquidity management. Using China's Rules for the Implementation of Online Voting (Rules) as a natural experiment, we find that increased minority shareholder participation leads to a significant reduction in corporate cash hoarding. By enabling their active participation, the Rules curtails tunneling activities, especially in firms with excess cash reserves, thereby mitigating expropriation by controlling shareholders. This effect is notably stronger in firms with weaker external monitoring mechanisms. Our findings also reveal that empowered minority shareholders contribute to more efficient cash allocation, reflected in higher market valuations of cash holdings and a quicker adjustment toward optimal cash levels. Overall, this study highlights the economic benefits of strengthened minority voting rights in mitigating agency problems and promoting value-enhancing liquidity management strategies.

Share repurchase and cash holdings: Evidence from China

This paper empirically examines the impact of share repurchase on corporate cash holding decisions by selecting A sample of stock repurchase of A-share listed companies in Shanghai and Shenzhen from 2007 to 2020. The results show that share repurchase can reduce the level of corporate cash holdings, and there is heterogeneity in financing constraints, dividend distribution and investment opportunities.

Female directors and cash holdings: The case of Vietnam

This study investigates the impact of gender equality on corporate cash reserves, focusing on the roles women occupy on corporate boards. Using data from 325 publicly listed companies in Vietnam between 2020 and 2022, the research employs various statistical models, including ordinary least squares (OLS), fixed-effect model (FEM), random-effect model (REM), and Feasible Generalized Least Squares (FGLS), to address heteroscedasticity. The findings reveal that the presence of female directors on corporate boards is significantly associated with lower cash reserves, suggesting that gender diversity influences cash management practices. This study contributes to the literature by highlighting the role of female directors in enhancing a firm's financial flexibility. It underscores the importance of creating an equitable workplace for female employees and provides insights into the benefits of gender diversity in corporate governance. The research specifically examines the Vietnamese context, reflecting the global trend towards gender diversity in corporate leadership. Regression analysis shows a significant negative relationship between the proportion of female CFOs and cash holdings, indicating that firms with more female CFOs tend to hold less cash. These findings have important implications for policymakers, investors, and corporate leaders by demonstrating the potential of female directors to shape financial policies and reduce risks associated with representative issues.

A novel approach to determinants of corporate cash holdings: Evidence from the airline industry

Net cash flow is extremely important in capital-intensive industries. In industries operating on a global scale, such as the airline industry, situations such as a terrorist attack, financial crises, pandemic, or war can make cash flow uncertain and unreliable. The airline industry has faced significant cash flow problems during the COVID-19 pandemic. The interruption of net cash flow, especially during crises (e.g., Covid-19), causes some industries to experience financial stress. In this study, we aim to reveal the financial determinants of corporate cash holdings in the airline industry, based on the airline business model. In this context, we empirically analyzed airlines employing low-cost and traditional business models. Unlike previous research, we analyze the financial determinants of airlines' net cash flows from financing activities, investing activities and operating activities. This paper makes a substantial contribution to the literature by leveraging a comprehensive analysis of cash flow dynamics, shedding new light on financial performance. We devised a comprehensive approach by formulating five distinct models to scrutinize the determinants that influence corporate cash holdings. The proposed model demonstrates versatility within various segments of the aviation industry, making it applicable to both traditional and low-cost airline business models. The findings of the study indicate that there are differences between models regarding the financial determinants of corporate cash holdings. The analysis reveals interesting insights contrary to the conventional wisdom on corporate cash holdings in the airline industry. For instance, one of the most interesting findings of the study is that the financial structure of airlines is significantly determined by the source of net cash flow (from financing, investment and operational activities). Furthermore, the findings of the study provide a multidimensional understanding of the factors affecting airlines' corporate cash holdings.

Corporate cash policy and double machine learning

Corporate cash policy and double machine learning

Factors affecting corporate cash holdings: Evidence from the energy sector of Saudi Arabia

This study investigates the impact of firm-specific components of cash holdings on the cash reserves of energy firms. Decisions related to cash management are significant and treated as confident made by financial managers to increase the value of a firm. Therefore, financial managers are obligated to hold an optimum level of cash to enhance the firm value. The study depends on secondary data from seven energy firms listed on the Saudi Arabian Stock Exchange over the period between 2014 and 2023. The study considers cash holdings as a dependent variable, leverage, networking capital, and profitability as explanatory variables, and firm size as a control variable. The study employed a linear regression model and a generalized linear regression (GLM) model with Gaussian and Gamma distributions to analyze the data. The results show that Saudi Arabian energy firms reserve approximately 7% of cash, while external financing is 51%. The pooled regression results show that the association between leverage and firms’ cash reserves was negative (–0.064) and significant at less than a 1% significance level. Further, the networking capital and profitability were positively related (0.063 and 0.113) and significant at 5% and 1% significance levels. Moreover, the firm size was positive but insignificant. The generalized linear regression model results with Gaussian and Gamma distributions were similar to the simple linear regression with minor variation. AcknowledgmentThis current project under research project number PSAU/2023/02/25767 was funded by Prince Sattam Bin Abdulaziz University.

The Marginal Value of Cash: Structural Estimates from a Model with Financing and Agency Frictions

How much value does an additional dollar of cash create for a firm? It is generally recognized that the marginal value of cash (MVC) can either exceed or fall below one dollar. Estimates of MVC can guide corporate cash and payout policy, indicate the quality of governance, and make a firm a target for takeover or activism. Yet the existing methods of estimation lack a rigorous theoretical foundation and often provide implausibly high or low estimates. In this paper, we provide a formulation of MVC and structurally estimate the MVC based on a model that encompasses the important determinants for the choice of cash savings, including financing and agency costs. We find that firms with large cash and capital stocks have lower marginal value of cash, whereas the relationship between leverage and marginal value of cash is hump shaped. Two quasi-natural experiments validate the MVC estimates. This paper was accepted by Lukas Schmid, finance. Funding: D. Li would like to thank the support by the Guangdong Natural Science Foundation [Grant 2024A1515011703]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01013 .