Investor protection and corporate cash holdings around the world: new evidence

Mai Iskandar-Datta () and Yonghong Jia

Review of Quantitative Finance and Accounting, 2014, vol. 43, issue 2, 245-273

Abstract: We provide new evidence that firms under weak governance regimes hold less cash than firms operating under strong governance, contrary to previous literature. Our findings also establish that there are two independent effects for the de jure and de facto aspects of governance that protect minority shareholders. Consistent with managerial empire building prediction, our study reveals that firms deplete their excess cash by overinvesting and this effect is exacerbated in countries with weak governance. The excess cash depletion has an adverse impact on firm performance, more so in countries with weak investor protection which is in support of the agency costs explanation. Copyright Springer Science+Business Media New York 2014

Keywords: Investor protection; Corporate cash policy; Firm performance; Corporate investments; Agency problem; G31; G32; G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (24)

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DOI: 10.1007/s11156-013-0371-y

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