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Impact of cash holdings and ownership concentration on firm valuation: Empirical evidence from Australia

Rashid Ameer

Review of Accounting and Finance, 2012, vol. 11, issue 4, 448-467

Abstract: Purpose - The purpose of this paper is to investigate the impact of firms' cash holdings and ownership concentration on the firms' valuation using an unbalanced panel dataset of non-financial listed firms in Australia. Design/methodology/approach - The author used a generalized method of moments approach suitable for unbalanced panel dataset to examine the impact of firms' cash holdings and ownership concentration on firms' Findings - The paper finds a positive relationship between cash holdings and Research limitations/implications - The sample consists of non-financial listed firms over the period of 1995 to 2010. Practical implications - The results imply that widely-owned firms have lower cash holdings because managers are able to access capital market easily compared to firms with concentrated ownership, which might have complex agency and information asymmetry problems. These findings are consistent with the agency costs. Managers in less widely-held firms have more discretion over cash holding policies, and the value reduction imposed on these firms may reflect shareholders' recognition of the possibility of managerial expropriations. Originality/value - This is believed to be the first paper to explore agency costs of cash holdings for Australian firms.

Keywords: Australia; Corporate finances; Corporate ownership; Cash management; Cash holdings; Free cash flows; Agency theory (search for similar items in EconPapers)
Date: 2012
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