Litigation risk and corporate cash holdings: The moderating effect of CEO tenure

Lei Liu

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

Abstract: Cash holdings represent a crucial decision that can affect the efficiency of a firm's cash usage and, ultimately, shareholder value. Taking advantage of a comprehensive sample of China's A-share listed companies from 2012 to 2022, this research examines the relationship between litigation risk and corporate cash holdings. In line with the precautionary motive, we discover robust evidence that litigation risk is positively correlated with corporate cash holdings. Moreover, we document that the positive relationship is more pronounced for firms with long-tenured CEOs, as they are more risk averse. Our findings are robust to a series of sensitivity analyzes. Overall, this study contributes to the literature on litigation risk and corporate cash holdings, and generates valuable practical implications for investors, managers, and policymakers.

Keywords: Litigation risk; Cash holdings; CEO tenure; Precautionary motive (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:s1544612324012406

DOI: 10.1016/j.frl.2024.106211

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