Level Of Corporate Cash Holdings Research Articles

The effects of banking market structure on corporate cash holdings and the value of cash

We investigate the impact of the local banking market structure on the level of corporate cash holdings and the value of cash. We find that, in more concentrated banking markets, firms increase their cash holdings by issuing more equity. The marginal value of $1 cash increases by 10 cents with a one-standard-deviation increase in bank concentration. The positive relationship between bank concentration and value of cash is robust to a rich set of tests such as for firms having access to bond markets or firms using syndicated loans and is more prominent for more financially constrained firms. We also explore the mechanism, and our results suggest that in more concentrated banking markets firms demand more cash to shield against default risk.

Ownership structure and corporate cash holdings in Jordan: the role of government ownership

ABSTRACT Using a dataset of 107 listed firms in Jordan from 2009 to 2018, we employed the generalized method of moments (GMM) to examine the effect of ownership structure on the level of corporate cash holdings. We found that higher government ownership is associated with higher cash holdings. On the other hand, different forms of ownership, namely block holding and individual and foreign ownership, were found to be insignificant. We further examined why firms in Jordan hold cash, concluding that when the level of government ownership rises, firms do not employ cash reserves for investments nor for dividend payments, which in light of governmental political purposes could be a clear indicator of agency problems.

Common Institutional Ownership and Corporate Cash Holdings

Based on the data of China's A-share listed companies from 2007 to 2020, this paper studies the impact of common institutional ownership on corporate cash holdings. The results show that common institutional ownership can significantly reduce the level of corporate cash holdings. Further analysis shows that the corporate internal governance mechanism will regulate the relationship between common institutional ownership and corporate cash holdings. In the enterprises without executive equity incentive, common institutional ownership will have a stronger inhibitory effect on corporate cash holdings.

Corporate inventory and cash holdings in digital economy strategy: Evidence from China

Using a sample of Chinese listed companies from 2013 to 2019, this study investigates the impact of the implementation of digital economy strategies on corporate inventory and cash holdings. The results suggest that the level of cash holdings significantly increases with the in-depth implementation of corporates’ digital economy strategies. The mechanism analysis finds that the implementation of digital economy strategies to improve the level of corporate cash holdings is achieved through an increase in inventory turnover. Further study finds that firms with different internal governance characteristics exhibit heterogeneity in the impact of implementing digital economy strategies.

Government Ownership and Corporate Cash Holdings: Empirical Evidence from the Amman Stock Exchange

While the effect of ownership structure on the level of cash holdings has been widely examined, that of government ownership has been understudied. Using a generalized method of moments (GMM) estimation on the panel data of 107 Jordanian firms listed on the Amman Stock Exchange, this research adds to the limited literature on the relationship between government ownership and the level of corporate cash holdings. Consistent with agency theory, the findings reveal that firms with government ownership hold higher levels of cash and that such ownership creates agency problems. Other types of ownership, namely individual, foreign, and block holders, were found to be insignificant. The results provide an important implication for policy makers in Jordan: in order to reduce agency problems associated with government ownership, the government should revise its ownership policy and ensure it specifies clear purposes and expectations of business ownership and how it intends to exercise its rights as owner.

Climate risk and corporate cash holdings: Mechanism and path analysis

Based on climate change data of local cities and cash holding data of Chinese listed companies from 2011 to 2019, this article studies the impact of climate change on the level of corporate cash holdings and analyzes the path of climate change on the corporate cash holding level. The results show that under the influence of climate change, enterprises hold a high level of cash holdings to cope with risks and change variables to carry out robustness tests; meanwhile, the results remain consistent. By analyzing the source channels of enterprise cash, it is found that climate change increases the cash received from selling goods, providing services, and tax refund, but decreases the cash received from borrowing. The mechanism of action shows that climate change has increased the operating risk of enterprises and thus the level of cash holdings of enterprises, but climate change has not increased the financial risk of enterprises. The main reason is that under the influence of climate change, enterprises have reduced the debt level and thus reduced the financial risk. Heterogeneity analysis shows that the impact of climate change on corporate cash holdings is more obvious in state-owned enterprises, enterprises with high degree of financing constraints, and ecologically fragile regions. This study provides a new explanation for the influencing factors and approaches of corporate cash management strategies, which helps to better understand the cash holding strategies of listed companies in China. It also indicates that climate change is likely to be a macro incentive to aggravate the risks of real economy.

The Correlation between Enterprise Internal Control Quality and Research and Development Investment Intensity.

Innovation is the driving force behind enterprise development. Improving the quality of the internal control of enterprises and increasing the intensity of R&D investment are important ways to enhance the level of scientific and technological innovation. Based on the data of Shanghai and Shenzhen A-share listed companies from 2010 to 2019, in this paper, we empirically examine the correlation between the quality of internal control and the intensity of R&D investment by using the level of corporate cash holdings as an intermediary variable. We find that high internal control quality can improve cash-holding level and that improving cash-holding level will increase R&D investment intensity. That is, cash-holding level has a mediating effect between internal control quality and R&D investment intensity, while internal control quality can have a direct or indirect positive effect on R&D investment. Accordingly, this study has important theoretical significance and practical value for enterprises that seek to promote R&D innovation and improve their internal control.

The religion effect on corporate cash holding in China: Buddhism and Taoism

AbstractBuddhism and Taoism have been deeply rooted in China for generations and both of them have a profound impact on the local culture and social norms. By employing 23,999 firm‐year observations between 2008 and 2018, we examine how local religious norms affect corporate cash policies. We provide strong evidence that religiosity significantly reduces the level of corporate cash holdings, by mitigating financial constraints and earnings management of the listed companies. Managers from religious areas make more effective investments and distribute more dividends. Furthermore, our findings document that religion has a more pronounced influence on cash holdings amongst the firms with the smaller size, lower leverage, higher marketization, effective internal control and facing fierce market competition. Overall, Buddhism and Taoism, constituting the main religious norms in China, significantly optimize the firms' cash holdings and firm value.

Will the luxury culture of the financial industry spread to non-financial companies? Based on empirical evidence of corporate financialization

China is the second-largest economy in the world. Recently it has shown a significant trend of financialization. The financial industry is becoming increasingly influential across the whole country. However, there is much negative information about its prevalent luxurious lifestyle. According to the finding presented in this paper, corporate financialization may cause the luxury culture of the financial industry to spread to non-financial companies, and the excessive perquisites reflect the luxury consumption of non-financial companies’ managers. This paper aims to determine the relationship between corporate financialization and excessive perquisites, as well as explore the mutual relationship between the two, in particular the role of luxury culture. Based on a sample of A-share companies listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2021, this paper uses the difference between the total perquisites and the expected normal perquisites determined by economic factors to identify excessive perquisites. The Penman-Nissim framework is employed to measure corporate financialization and OLS regression analysis is performed. The empirical results show that the phenomenon of corporate financialization has a significant positive impact on excessive perquisites. Further research shows that such an impact is only evident during the period associated with established luxury culture excessive perquisites. This relationship can also be influenced by the skills and professional experience of managers, the level of corporate cash holdings, and investment income. This paper confirms the effect of luxury culture on firms’ financial behaviour and identifies new factors influencing excessive perquisites.

The effect of cultural heterogeneity on cash holdings of multinational businesses

This paper investigates the effect of cultural heterogeneity on corporate cash holdings by focusing on multinationals. The result shows that the level of corporate cash holdings is positively related to the degree of national cultural differences within a multinational, after controlling for other firm- and country-level factors. This positive relation is explainable by precautionary and agency motives. Further, we show that business diversification and geographical concentration can mitigate high cash holdings associated with cultural heterogeneity. Overall, these results suggest that it is important for multinational management to account for cultural heterogeneity in the context of global operations.

Corporate cash holdings and disclosure violations: an empirical investigation of Jordanian listed companies

PurposeThis study aims to examine the impact of low-quality financial statements; that is, disclosure violations reported by the Securities Exchange Commission related to the level of cash holdings (CH) of firms listed on the Amman Stock Exchange (ASE).Design/methodology/approachUsing panel data from 107 ASE-listed companies from 2009 to 2018, the study uses generalized method of moment estimation to examine the research hypothesis. This study hypothesize that disclosure violations can affect the level of CH and control for several variables that affect this level.FindingsThe results show that disclosure violations significantly affect the level of CH and that cash flow, capital expenditure and debt issues have a significantly positive impact on corporate CH. On the other hand, the market to book ratio and sales growth were found to be insignificant.Research limitations/implicationsThe limitations of the research include the fact that information on research and development and equity issues were not available, so were not included in the examination.Practical implicationsIt is recommended that managers enhance the quality of disclosures since this allows them to hold lower levels of cash and exploit more investment opportunities. Policymakers are recommended to supervise firm disclosures closely and create ratings for disclosure quality.Originality/valueTo the best of the author’s knowledge, this is the first empirical research on the association between proven low-quality disclosures and the level of corporate CH among Jordanian listed companies.

Does corporate social responsibility transparency mitigate corporate cash holdings?

PurposeThis article aims to explore whether a firm's corporate social responsibility (CSR) transparency alleviates a firm's cash holdings.Design/methodology/approachCSR transparency ratings encompass both the quantity and the quality of CSR practices, as validated by Bloomberg. While based upon firm-specific disclosure, transparency ratings impound additional information gathered independently by Bloomberg and thus bridge the gap between CSR disclosure and CSR performance. The authors use ordinary least squares estimators, and the authors concentrate on a panel of S&P 500 index companies over the period of 2012–2018 to examine the effect of CSR transparency on corporate cash holdings.FindingsThe authors document that a higher level of CSR transparency induces a lower level of corporate cash holdings. Additional results imply that this negative relationship is more pronounced for firms suffering from high information asymmetry, with low financial reporting quality and for those with weak governance. Further analyses document that higher CSR transparency can help firms to enjoy lower cost of debt and to be less financially constrained, enabling high CSR transparent firms to obtain external financing more easily and at a lower cost, thus lowering the need to hoard cash. Ultimately, the study findings suggest that CSR transparency increases the market value relevance of an additional dollar in cash holdings.Originality/valueThe authors contribute to both research streams of CSR and corporate cash holdings as they provide evidence about the influence of CSR transparency as a monitoring and insurance-like mechanism on corporate cash holdings.

The Effect of Dialect Sharing on Corporate Cash Holdings in China

Language is an important dimension of culture. Dialect diversity is a prevalent phenomenon in many countries. This paper examines whether dialect sharing between the chairperson and the CEO (CCDS) affects corporate cash holdings and, if so, through which channels. We obtain robust evidence that CCDS has a negative and significant effect on the level of corporate cash holdings, and this effect remains after controlling for home‐town sharing. Moreover, this negative effect occurs by mitigating the company's agency motive and precautionary motive for cash holdings. We further demonstrate an information mechanism, a reputation mechanism, a CEO risk‐incentive mechanism, and a cooperation mechanism through which CCDS reduces cash holdings. The negative effect of CCDS on cash holdings is more pronounced among firms whose chairperson and CEO both work outside their home towns, but the difference is insignificant between state‐owned enterprises (SOEs) and non‐SOEs. Finally, we find that CCDS improves the optimal level of cash holdings by reducing excess cash. These results indicate that this cultural connection can be a substitute for formal corporate governance mechanisms when corporate governance is weak. It can also be used as a useful financial risk management tool in dealing with firms’ uncertainty.

Impacts of Managerial Overconfidence and Agency Costs on Cash Holdings Within Blockchain Firms

We study the effects of managerial overconfidence and agency costs on cash holdings of blockchain firms, where the overconfidence is defined as a cognitive bias that a manager will underestimate volatility in an uncertain environment. We develop a real-options game model that incorporates both overconfidence and agency costs. The theoretical results show that future investment opportunities are necessary for holding cash when agency costs are within the firm. Expected returns from blockchain projects decrease with managerial overconfidence. The level of corporate cash holdings increases with overconfidence and decreases with agency costs. Using the data of Chinese listed firms from 2010 to 2019, we find that the regression results are consistent with our theoretical findings. Moreover, we find that the blockchain firms’ cash holdings are higher than their peers. Our results shed some light on the impacts of behavioral characteristics on cash holdings.

Do Firm Characteristics and Industry Matter in Determining Corporate Cash Holdings? Evidence from Hospitality Firms

The study investigates a recent surge of cash literature by using a sample of hospitality firms to gain a new understanding of corporate cash holdings. Past literature states that there is a substantial variation of liquidity across industry groups. Existing literature predominantly refers to US-listed firms and focus on either hotels or restaurants and not the hospitality industry as a whole. Therefore, we provide a comparative study of cash holdings behaviour between hospitality and non-hospitality firms from an emerging market context. Using a sample of public listed hospitality firms from 2002 to 2013, dynamic panel regression techniques are used to study the relationships between firm characteristics and cash levels. Also, the non-parametric Wilcoxon-Mann-Whitney test was carried out to examine the time and sectoral differences in cash holdings. In addition, the panel regression techniques are used to investigate the relationships between firm characteristics and level of corporate cash holdings. The results reveal that firm characteristics do matter in hospitality firms. We find that firm size, capital expenditures, and liquid assets substitutes are negatively related to cash level. The results support trade-off theory and the pecking order theory. This study incrementally explains the cash holdings behaviour of hospitality firms in emerging market.

CEO network centrality and corporate cash holdings

The social network centrality of Chief Executive Officers (CEOs) has received tremendous attention in recent research. This study examines how CEO network centrality relates to corporate cash holdings. We find a significant negative relation between CEO network centrality and the level of corporate cash holdings, suggesting that firms with higher-centrality CEOs hold less cash. Our results still hold after a battery of robustness checks.

Determinants of corporate cash holdings: An empirical study of Chinese listed firms

This study explores the determinants of corporate cash holdings in the Chinese context. As one of the largest developing countries in the world, China offers an interesting opportunity to explore the role of corporate governance, and ownership structure in explaining corporate cash holdings. Owing to the unique economic problems in the developing and emerging economies, this study aims to investigate whether the research findings on developed countries could be generalized globally. Applying fixed-effects estimations on a sample of 115 Chinese firms listed between 2012 and 2016, we find that the level of corporate cash holdings has a significantly negative relationship with leverage, bank debt, non-cash liquid assets and managerial ownership. In particular, cash flow volatility, investment opportunity and dividend have a significantly positive relationship with cash holdings levels. These findings are consistent with the majority of the existing studies carried out in the Western context. We also find that firm size, cash flow, board independence and ownership concentration have a significant influence on the level of corporate cash holdings. Our study contributes to the finance literature and we offer new insights into the relationship between corporate governance and corporate cash holdings in the Chinese context. Some of the findings on the developed countries could be generalized to a wider context. Further, the unique relationship between corporate governance and cash holdings in the Chinese context provides empirical insights for further research.

The Effect of CEO Gender on Corporate Cash Holdings and Over-investment Problems - Evidence from Taiwan

This study empirically investigates how CEO gender affects corporate cash holdings and the over-investment of free cash flow among Taiwan listed firms. We utilize a sample of 179 listed firms with female CEOs and a sample of 2149 listed firms with male CEOs from 2012 to 2014. The empirical results show that female CEOs are associated with a higher level of corporate cash holdings. Compared with male CEOs, female CEOs are more concerned with the precautionary motive of cash, while they care less about the opportunity cost of cash. Moreover, we find that female CEOs moderate the over-investment problem of free cash flow, again indicating that they are relatively conservative than male CEOs.

Fair value accounting and corporate cash holdings

A trade-off often exists between relevance and reliability of accounting numbers. Prior research suggests that fair value accounting increases the relevance and decreases the reliability. The reduced reliability may lead to more agency conflicts. We predict a positive relation between the use of fair value inputs and the level of corporate cash holdings because prior research links more agency conflicts to a higher level of cash. We find that increased use of fair value inputs is associated with a higher level of cash holdings, and the results are mainly driven by Level 1 and Level 2 fair value inputs. In addition, we find that our results are stronger for firms with more-able managers.

The Effect of Corporate Tax Avoidance on the Level of Corporate Cash Holdings: Evidence from Indonesian Public Listed Companies

The Effect of Corporate Tax Avoidance on the Level of Corporate Cash Holdings: Evidence from Indonesian Public Listed Companies