Politically connected outside directors and the value of cash holdings

Jeong-Hoon Hyun, Natalie Kyung Won Kim and Jae Yong Shin

Finance Research Letters, 2024, vol. 62, issue PA

Abstract: We investigate the impact of politically connected outside directors (PCODs) on the market value of firm cash holdings, using a hand-collected sample of PCODs in Korean chaebol firms. PCODs may reduce the precautionary motives for holding cash by reducing the likelihood of future cash flow shocks. However, they may exacerbate agency conflicts between controlling shareholders and minority shareholders. We find that firms with PCODs tend to exhibit a lower market value of cash holdings compared to those without PCODs. This relationship is driven by a reduction in precautionary motives rather than by agency conflicts, shedding light on how PCODs contribute to firm value.

Keywords: Politically connected outside directors; Cash holding; Market value of cash; Chaebol (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324001545

DOI: 10.1016/j.frl.2024.105124

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