Financial constraints, board governance standards, and corporate cash holdings

Choonsik Lee and Heungju Park

Review of Financial Economics, 2016, vol. 28, issue C, 21-34

Abstract: This study examines whether financial constraints and board governance play substitution roles in lowering agency concerns in corporate cash holdings. Using four firm-specific characteristics of financial constraints and 28 forward-looking board governance standards, we find that board governance mitigates agency concerns in cash holdings more significantly for financially less-constrained firms. Consistently, financially less-constrained firms increase the level of board governance and adopt more board governance standards. A natural experiment with the 2007 financial crisis provides robustness to our findings. Our evidence suggests that financial constraints interrelate with the effectiveness of board governance on corporate cash holdings.

Keywords: Financial constraints; Internal monitoring; Corporate cash holdings (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:28:y:2016:i:c:p:21-34

DOI: 10.1016/j.rfe.2015.10.001

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