Corporate governance and firm cash holdings in the US

Jarrad Harford (), Sattar A. Mansi and William F. Maxwell

Journal of Financial Economics, 2008, vol. 87, issue 3, 535-555

Abstract: Using governance metrics based on antitakeover provisions and inside ownership, we find that firms with weaker corporate governance structures actually have smaller cash reserves. When distributing cash to shareholders, firms with weaker governance structures choose to repurchase instead of increasing dividends, avoiding future payout commitments. The combination of excess cash and weak shareholder rights leads to increases in capital expenditures and acquisitions. Firms with low shareholder rights and excess cash have lower profitability and valuations. However, there is only limited evidence that the presence of excess cash alters the overall relation between governance and profitability. In the US, weakly controlled managers choose to spend cash quickly on acquisitions and capital expenditures, rather than hoard it.

Date: 2008
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Chapter: Corporate Governance and Firm Cash Holdings in the U.S (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:87:y:2008:i:3:p:535-555

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