Can comment letters impact excess cash holdings? Evidence from China

Youfu Yao and Yun Hong

International Review of Economics & Finance, 2023, vol. 83, issue C, 900-922

Abstract: Using a panel of Chinese listed firms from the 2015–2018 period, we document that firms receiving cash-related comment letters (CLs) experience a decrease in excess cash holdings of RMB 207.61 million (or US$32.15 million). The cross-sectional tests show that the governance effects of cash-related CLs are more pronounced in firms with high levels of managerial entrenchment and high probabilities of controlling shareholder tunneling but are weaker in politically connected firms. Further tests show that auditors' opinions strengthen cash-related CLs' governance effects, and cash-related CLs curb firms’ overinvestment due to excess cash holdings.

Keywords: Comment letters; Excess cash holdings; Twin agency problems; Regulator capture (search for similar items in EconPapers)
JEL-codes: C22 C53 E60 G11 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:83:y:2023:i:c:p:900-922

DOI: 10.1016/j.iref.2022.11.003

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