Corporate Liquidity

Henri Servaes, Jan Mahrt-Smith and Amy Dittmar

No 3499, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Agency problems are an important determinant of corporate liquidity. For a sample of more than 11,000 firms from 45 countries, we find that corporations in countries where shareholders rights are not well protected hold up to twice as much cash as corporations in countries with good shareholder protection. In addition, when shareholder protection is poor, factors that generally drive the need for liquidity, such as investment opportunities and asymmetric information, actually become less important. These results strengthen after controlling for capital market development. In fact, consistent with the importance of agency costs, we find that managers actually hold larger cash balances when capital markets are better developed. Our evidence indicates that investors in countries with poor shareholder protection cannot force managers to disgorge excessive cash balances.

Keywords: Corporate liquidity; Cash holdings; Shareholder rights (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 (search for similar items in EconPapers)
Date: 2002-08
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (12)

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