Politically connected firms and the cash flow sensitivity of cash: International evidence

Yuanto Kusnadi

Finance Research Letters, 2024, vol. 69, issue PB

Abstract: This paper examines the role of political connections on the cash flow sensitivity of cash using a sample of international firms. The finding reveals that the cash flow sensitivity of cash is lower for politically connected firms than their non-connected counterparts, which is supportive of the precautionary motive of cash holdings. Further analyses reveal that the result is driven by political connections that are made through the directors of the firms and with members of parliament, as well as by differences in country-level institutional infrastructure. Overall, the empirical results corroborate that of previous studies on the relevance of the precautionary motive of cash holdings.

Keywords: Political connections; Cash flow sensitivity of cash; Precautionary motive of cash holdings; Financial constraints; Country-level institutional infrastructure (search for similar items in EconPapers)
JEL-codes: F50 F54 G15 G34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012224

DOI: 10.1016/j.frl.2024.106193

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