Corporate governance and cash holdings: Evidence from worldwide board reforms

Chen, Ruiyuan (Ryan), Omrane Guedhami, Yang Yang and Gulnara Zaynutdinova

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: Using staggered board reforms as a quasi-natural experiment and a difference-in-differences approach, this study examines the impact of corporate governance on cash holdings in 41 countries. We find that board reforms are followed by significant reductions in cash holdings. This effect is more pronounced for firms with weaker pre-reform corporate governance and for firms from countries with weaker institutional environments. Analysis of cash spending suggests that, following board reforms, firms are more likely to use cash to increase R&D expenditures, dividend payouts, and share repurchases, but not to increase capital or acquisition expenditures. Finally, the results indicate that enhanced corporate governance following board reforms leads to higher (lower) cash (dividend payouts) values, consistent with the view that board reforms strengthen corporate governance.

Keywords: Board reforms; Cash holdings; Institutions; Value of cash; Corporate governance (search for similar items in EconPapers)
JEL-codes: G32 G34 G35 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302157

DOI: 10.1016/j.jcorpfin.2020.101771

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