Cash holdings, corporate governance and financial constraints

Edith Ginglinger and Khaoula Saddour ()
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Khaoula Saddour: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We examine the relation between cash holdings, quality of governance and financial constraints. We find that firms with strong shareholder rights hold more cash, contrary to the predictions of agency theory. This result is partly due to the positive correlation that exists between governance quality measures and the degree of financial constraint faced by the firm. We show that governance quality has no impact on cash holdings by financially unconstrained firms. It does, however, have a positive impact on the cash holdings of certain financially constrained firms, particularly family firms. Anti-takeover provisions give these firms extra flexibility, enabling them to issue shares without the founding family losing control, and provide an alternative to high cash holdings.

Keywords: cash holdings; financial constraints; governance (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

Published in European Financial Management Association, 2007, Vienna, Austria. pp.1-33

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00162411

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