Organization Capital and Corporate Governance

Jaeseong Lim ()
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Jaeseong Lim: E. Craig Wall Sr. College of Business Administration, Coastal Carolina University, Conway, SC 29528, USA

JRFM, 2023, vol. 16, issue 9, 1-14

Abstract: Management with high organization capital, which can be seen as an indicator of superior internal governance, can be expected to exhibit a preference for cash reserves to safeguard assets and mitigate the risk of underinvestment. However, external parties may see high cash reserves as a risk factor for the agency problem. Strong external governance can mitigate the preference of management with high organization capital for cash reserves. The empirical analyses show a positive association between the organization capital of U.S.-listed firms and their cash reserves when controlling for multiple variables. Furthermore, through employing the hostile takeover threat index, I reveal the disciplinary effects of strong external governance. This study adds to the existing literature investigating corporate governance that is useful in corporate decision making.

Keywords: corporate governance; cash holdings; agency problems (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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