Firm Hold Research Articles

Impact of the regional financial reform on corporate financialization: Evidence from China

This study employs the data of Chinese A–share listed companies from 2007 to 2022, considers the implementation of the regional financial reform pilot zone policy as a quasi-natural experiment, and tests the impact of this reform on the financial asset holdings of nonfinancial firms by using a difference-in-difference model. Based on the findings, the regional financial reform restrains the financialization of nonfinancial firms through two paths: 1) promoting profit equalization, which reduces the return gap between real and financial investments; and 2) balancing the allocation of credit resources, which curbs corporate participation in shadow banking. Further analysis showed that the governance effect of the regional financial reform is especially prominent for firms in regions with lower administrative, market development, and financial development levels, especially in the central and western regions. In the economic consequences test, we found that the dampening effect of the regional financial reform on corporate financialization can promote real investments, especially innovation investments. These findings not only enrich the research on the determinants of corporate financialization and the economic consequences of the regional financial reform, but they also provide insights for financial reforms in other emerging economies.

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.

Stranded Asset Risk in the Bond Market

Asset stranding involves permanently shutting down productive but harmful facilities that impose negative externalities on society. Because bonds are a major source of funding for corporations, investors such as pension funds and insurance companies seeking to reduce their exposure to asset stranding have the potential to limit the supply of capital to polluting firms by divesting their holdings of the polluting firms’ bonds. We examine the implications of stranded asset risk for polluting firms regulated under the Clean Air Act (CAA). Polluting facilities located in counties in violation of the CAA are required to comply with the act’s provisions regardless of cost, leading to a contraction in capital for companies with facilities located in affected counties. More broadly, this study contributes to our understanding of whether and how pollution externalities affect private-sector capital supply to polluting firms.

Conservatism, the Far Right, and the Environment

Sociology operates with an impoverished understanding of conservatism and the natural environment. The discipline's focus on antiregulatory and antiscience dimensions of conservative politics can obscure a more comprehensive, historically deep, and theoretically rich understanding of conservatism's connection to nature. We review and integrate sociological research with a large multidisciplinary global literature on conservative and far right environmental thought. Our analysis shows an intellectual tradition built around three commitments concerning the moral order of nature and society: naturalism, organicism, and pastoralism. Rather than being antiscientific, these traditions have drawn heavily on natural science for their authority. After tracing their history, we consider several contemporary manifestations, sometimes in ways that are counterintuitive to sociology's dominant understanding of conservatism. Conservative thought, including its far right edges, maintains a firm hold on global politics while climate change transforms the planet. To better understand these dynamics, sociology must continue to integrate work from other socioenvironmental fields. This review begins to correct this neglect and charts a path for future research at this increasingly impactful intersection.

Cross-border regulatory cooperation and cash holdings: Evidence from US-listed foreign firms

We investigate the effect of cross-border regulatory cooperation on the cash holdings of firms cross-listed on US stock exchanges. The staggered adoption of the Multilateral Memorandum of Understanding (MMoU) facilitates cooperation among securities regulators around the world and expands their enforcement capabilities against foreign firms. Using a difference-in-differences design, we find that US-listed foreign firms significantly reduce their cash holdings after their home countries sign the MMoU, suggesting that the threat of increased SEC enforcement induced by regulatory cooperation disciplines corporate insiders from stockpiling cash holdings to enjoy private benefits of control. Information opacity and the cost of capital are two of the channels through which the threat of increased SEC enforcement affects cash holdings. The reduction in cash holdings is more pronounced for foreign firms from countries with weaker governance. After the MMoU, foreign firms make faster cash adjustments toward target levels, they reduce cash by making payouts, and their cash is valued more by investors.

Clan culture and corporate cash holdings: Are private companies supported by informal institutions?

In this paper, we empirically examine whether clan culture in China, an extant informal institution established 2000 years ago, affects corporate cash holdings. We use city-level pedigree density as a proxy for clan culture and find that private firms deeply entrenched in clan culture are less likely to hold cash. Our results hold after a series of robustness tests, including instrumental variable regression, alternative measures, and controlling for other influencing factors. Mechanism tests demonstrate that in places with strong clan culture, the cash holdings of private firms are less sensitive to the volatility of operating cash flow, and those non-state-owned enterprises are more likely to obtain alternative financing sources and less likely to carry out high-risk activities. Cross-sectional analyses show that the negative relationship between clan culture and corporate cash holdings is more prominent for firms located in areas with lower marketization or worse economic development. Furthermore, under the shock of the COVID-19 pandemic, firms with strong clan culture enjoy faster growth in trade credit rather than in interest-bearing liabilities. Overall, our findings provide evidence for the existence of sociocultural determinants of corporate cash holding decisions, as they demonstrate that clan culture secures corporate operations and thus reduces the precautionary motives for holding cash.

Affiliated guarantee risk control and firm cash holdings: Evidence from China

As an inseparable part of a company's business risk, the ability to reduce the impact of affiliated guarantee risk on business decisions has become a topic of great concern to governments. This paper focuses on the “Circular on Enhancing Risk Prevention and Mitigation of Loans from Corporate Guarantee Circles” (ERPML) and explores its impact on affiliated guarantee risk control and firms' cash holdings. The findings suggest that affiliated guarantee risk control increases firms' cash holdings, a conclusion supported by robustness tests. This increase is primarily driven by preventive motives and the reduction of shareholders' agency costs. The heterogeneity test indicates that the influence of affiliated guarantee risk control is more pronounced in nonstate-owned firms and firms with low institutional shareholding, low debt financing and low financialization. Finally, the economic results suggest that affiliated guarantee risk control helps reduce firms' business risks and improve their performance. Overall, this paper provides empirical evidence of the positive economic consequences of strengthening the regulation of associated guarantee risk.

Does firm-level teamwork culture affect cash holdings?

PurposePrior literature on the cultural determinants of cash holdings focuses on time-invariant cultural variables measured at the geographical level. These measures of culture do not capture the firm-level variation in corporate culture. Using a validated time-variant measure of firm-level corporate culture, specifically teamwork, we examine the effect of teamwork on a firm's cash holdings.Design/methodology/approachIn this paper, we explore the effect of corporate teamwork culture on firms' cash holdings. Using sudden CEO turnover as an exogenous shock to a firm's teamwork culture, we find teamwork increases cash holdings. Also, we test and find two channels—financial constraint and agency—and two new labour-related channels—human capital quality and labour inefficiency—through which teamwork culture affects cash holdings. Our results are robust to endogeneity tests.FindingsWe find that teamwork increases the cash holdings of firms. We find that a firm with a high teamwork culture has higher cash holdings: an increase of one standard deviation in teamwork leads to a 14.6% rise in the mean cash holdings.Originality/valueTo our knowledge, our study is the first to introduce the firm-level teamwork cultural construct as a determinant of cash holdings.

Geopolitical risk and cash holdings: evidence from an emerging economy

Purpose This study aims to examine the influence of geopolitical risk (GPR) on corporate cash holdings in an emerging market, India. It also investigates whether the effect of GPR on cash holdings varies across financially constrained and unconstrained firms, and across the different sectors. Design/methodology/approach This study uses the fixed-effect regression model to examine the effect of GPR on the corporate cash holdings of 2090 Indian firms from 2003 to 2021. To correct the potential endogeneity issue and ensure the robustness of the results, this study uses two-stage least squares regression, alternative cash holdings proxies, GPR measures and across the different periods (Global financial crisis and COVID-19). Findings The paper finds that GPR has a positive impact on the cash holdings of Indian firms. The authors also find that the positive relationship between GPR and cash holdings is consistent for financially constrained and unconstrained firms. Furthermore, the results also show that firms in the construction sector maintain higher cash reserves than other sectors. Originality/value To the best of the authors’ knowledge, this study is one of the first-ever studies which examines the effect of GPR on corporate cash holding for an emerging economy like India. The use of alternative measures of cash holding, GPR, and estimation methods make this study more robust.

MOZAMBIQUE AND NEPAL: REVOLUTIONARY EXPERIENCES ON THE CUSP OF SOCIALISM WHICH REMAINS UNBORN

The revolutionary experiences of Mozambique and Nepal present a stark case of revolutions on the verge of socialism which remains unborn. Owing to several factors, the communists and socialists at the helm of these states for several years now have faltered to embark on decisive socialist paths despite their firm hold of state power. The same reportedly hindered its march to socialism. In 1985, Frelimo finally shredded its Marxist-Leninist ideology and embraced the neo-liberal policies in the guise of development and modernity in exchange for loans and aid from multilateral financial agencies of the West. Nepal, on the other hand, is being led by an alliance of communist and socialist parties. However, its march towards socialism is supposedly hampered by the country’s economic backwardness, dependence on aid and labor wages from India and the Middle Eastern countries, ballooning debt from multilateral institutions, the predominance of the peasant class over the proletariat, and the inability of the ruling coalition to forge on a single road to socialist construction. This paper looks into the feasibility of socialism being attained in Nepal and Mozambique whose economies and productive forces are undeveloped, with their people in subsistence living and a meager awareness of socialist ideals among the masses. ? The paper argues the possibility of building socialism as shown by the Soviet and Chinese experience, provided that there is a strong proletarian party whose vision and ardor are consistent with the Marxist theory of history and class struggle.

Do board networks matter for corporate cash holdings? Evidence from Australian firms

PurposeIn today’s interconnected world, social capital has emerged as a crucial business competence, drawing significant attention in recent literature. Using social network analysis, this study aims to investigate the impact of network centrality, established by a firm through its board members (i.e. boardroom networks), on corporate cash holdings.Design/methodology/approachThis study uses extensive panel data comprising 36,963 firm-year observations of firms listed on the Australian Securities Exchange, spanning a 22-year period (2001–2022). The study uses firm fixed-effect regression along with several alternative specifications and an instrumental variable approach to ensure the robustness of the results. Boardroom network centrality is quantified by five measures that capture different perspectives on networks as viable conduits for resource exchange and information flow: degree, two-step reach, closeness, eigenvector and betweenness.FindingsThe authors find evidence for the benefits of board networks. Firms with well-connected boards (central firms) are more likely to have smaller cash holdings. The findings also reveal distinct effects stemming from local and global properties of centrality, with local network measures playing a more pronounced role in shaping cash-holding decisions. Overall, the evidence reflects the ability of connected directors to enhance governance by limiting managerial discretion over cash reserves, thus reducing agency conflicts associated with cash holdings.Research limitations/implicationsThis study offers important insights for regulators, investors and practitioners, highlighting the potential for connected directors to effectively curtail managerial autonomy in deploying corporate cash holdings.Originality/valueThis study contributes to the ongoing discussion about the advantages and drawbacks of board networks, which constitute a vibrant and burgeoning area of research in the finance literature. It also complements scanty network-based studies on firm cash holdings. Importantly, this study extends prior work by providing robust evidence and a comprehensive analysis of the nuanced roles that board networks play in affecting the level of cash reserves.

Corporate cash holding and firm’s performance in times of Ukraine war: a literature review and way forward

Corporate cash holding and firm’s performance in times of Ukraine war: a literature review and way forward

Digital Technologies, Investor Sentiment, Limits to Arbitrage and Value of Firm Cash Holdings in China's A Stock Market is Good

Cash is a firm’s most liquid asset and this asset can add firm value by mitigating firm financial constraints, reducing debt default risk and opportunity costs. But the positive and negative asset pricing effect of cash holdings are related to digital technologies, sustainable performance and investors’ sentiment and limits to arbitrage. The paper finds the digital technologies and sustainable performance, both are negatively associated with the value of cash holding. The current study also scrutinized that firm’s cash holding value appears to be positive in China’s A stock market, and this asset pricing effect is more significant in periods when investor sentiment is high and in firms confronting high level of limits to arbitrage. This research provides evidences on the asset pricing effect of firm cash holdings and on how inefficient capital market affects this asset pricing effect. The findings of this research are useful for firms) improving cash management and have implications for supervising department to improve stock market efficiency.

Does Cash Holding, Intellectual Capital, Gender Diversity of the Board of Directors Affect Firm Value?

The purpose of this research was to determine the relationship between firm valuend cash holdings, intellectual capital, and gender diversity on the board of directors. Companies in the non-cyclical consumer sector that are listed on the Indonesia Stock Exchange (IDX) for the years 2017 through 2021 make up the study's population. Purposive sampling was utilised in the sample selection for this research, resulting in the collection of 18 firms with five years and 90 data observations. The findings of hypothesis testing reveal that firm value is influenced by cash holdings, intellectual capital, and the gender diversity of the board of directors. A favourable impact on firm value is partially provided by intellectual capital and the gender diversity of the board of directors. Cash Holding has little impact on a firm value, though. Future researchers is suggested to reexamine the cash holding variable based on the research findings since the variable in this study had no impact on firm value.

Gender Diversity and Cash Holdings in Indonesia Non-Financial Firms

This study aimed to investigate the effect of gender diversity on the board of commissioners and the board of directors on the company's cash holdings. A non-financial firm with 1305 observations that was listed on the Indonesia Stock Exchange between 2015 and 2019 serves as the study’s sample. The data in this study were analyzed using multiple regression. The ratios of cash holdings to net assets and total assets are used to calculate the amount of cash held. According to this study, the company’s cash holdings are negatively impacted by the diversity of the board of commissioners, and positively by the diversity of the board of directors

Impact Makers (A): The Newman's Own of Management Consulting

This case requires students to evaluate alternative dual-share-class corporate structures that allow companies and entrepreneurs to pursue profit with purpose. The case explores Impact Makers, an IT consulting company based in Richmond, Virginia. While original founders of the firm hold all voting rights, the cash flow rights belong to two nonprofits setting the stage for a Newman's Own model of management consulting. The case discusses whether and how the alternative corporate structure aids the firm's overall strategy to attract top-quality employees, pay them competitive salaries, and provide superior service to its clients while donating 100% of its lifetime value to charitable causes, largely through partnerships with various nonprofit organizations. More importantly, the case asks students to evaluate how such a dual-share-class and dual-purpose company can raise capital to fund continued growth.The case opens with CEO Michael Pirron reminding himself of all the questions he had run through to execute a strategy to further grow Impact Makers' consulting business both through expanding a menu of services and through conquering new geographical markets. To do either, or both, the company needed a cash infusion. Internal cash was limited, as up to 40% of it flowed to charitable partners, demonstrating Impact Makers' commitment to its mission. Raising debt for a company without fixed assets was challenging and time consuming. Complicating it all was that being structured as a nonstock corporation rendered equity raising difficult. Could Impact Makers raise money to grow and stay true to community values at the same time?

CFO social capital, liquidity management, and the market value of cash✰

We find that firms with CFOs who have extensive social connections within the finance industry hold less precautionary cash. CFO connections matter more than CEO connections, reflecting the preeminence of CFOs among C-level executives in cash management and negotiating access to corporate finance. Firms reduce the proportion of assets held in cash by seven percentage points in the two years following CFO turnover and the appointment of a CFO with finance industry connections. The stock market valuation of incremental cash holdings of firms with well-connected CFOs is lower than for other firms, consistent with investor recognition of CFO social capital as an alternative means to address constraints on external capital.

Performance of Companies and Controlling Share Ownership on Company Liquidity: Evidence from Emerging Markets

The relationship between the fundamentals of a firm and cash holdings is an interest topic in financial accounting and financial market literature. Adequate cash holdings can lead to higher profits and financial flexibility, allowing companies to take advantage of opportunities. Therefore, the real estate and property sector requires optimal liquidity holdings to avoid losing investment opportunities and achieve organizational goals. This study examines the effect of controlling share ownership and profitability on cash holdings in the corporate sector. Our samples are the real estate and property sub-sector from 2018 to 2021. The study uses quantitative methods with an archival technique from a capital market database. We performed multiple linear regression to test our hypotheses. The findings show that controlling share ownership has a significant influence on cash holdings. However, the profitability impact on cash holding is not supported. Our study has several limitations, i.e., (1) The study focused only on sub-sector real estate and property, and (2) Our sample period was conducted during 2018-2021. Originality/value examines the effect of controlling share ownership and profitability on cash holdings in the corporate sector, with a focus on the real estate and property sub-sector from 2018 to 2021.

Cybersecurity and executive compensation: Can inside debt-induced risk aversion improve cyber risk management effectiveness?

This study contributes to the emerging literature on the determinants and the consequences of cyberattacks by examining the impact of inside debt compensation on a firm's likelihood of experiencing a cyberattack and on attacked firms' cash holdings, R&D investments, and asset tangibility. We provide compelling evidence that inside debt compensation reduces the probability of experiencing a cyberattack. Furthermore, we document that high inside debt CEOs reduce their firm's cash holdings while they increase R&D investments and asset tangibility once their firms experience a hacking incident. These effects persist for three years after the attack. Our results are robust to alternative measurements of inside debt compensation and after accounting for potential sample selection and endogeneity concerns. Our findings underscore the importance of inside debt compensation as a governance mechanism that alleviates inefficiencies related to cybersecurity investments.

Institutional investors and mispricing of unionized firms

AbstractWe examine investment by different types of institutional investors in firms with strong labor unions. We find that hedge funds own a lower percentage of shares in these firms than in other firms. In contrast, passive institutional investors and institutional investors as a group own a higher percentage. Our tests suggest that the relation between unionization and hedge fund ownership is causal: When union power changes in a firm, hedge fund ownership changes in the opposite direction. Instead, passive investor holdings in unionized firms seem to be driven by other firm characteristics.