Cash Holdings, Corporate Governance Structure and Firm Valuation

Review of Pacific Basin Financial Markets and Policies, Vol. 12, No. 3, pp. 475-508, 2009

Posted: 22 Apr 2010

See all articles by Cheng-Few Lee

Cheng-Few Lee

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

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Date Written: September 1, 2009

Abstract

Firms with higher board independence, smaller boards, and lower expected managerial entrenchment, have lower cash holdings. We find that the positive association between cash holdings and managerial entrenchment is mitigated by stronger board structures. Specifically, in firms with higher expected managerial entrenchment, those with higher proportion of outside director on the board and smaller board size have lower cash holdings. We also find that firm value is negatively associated with cash levels. The negative association between firm value and cash holdings is more pronounced in firms with (i) lower proportion of outside directors, (ii) larger boards and (iii) higher expected managerial entrenchment. For firms with both high cash holdings and high expected managerial entrenchment, investors additionally discount the valuation of firms with lower proportion of outside directors and those with larger boards.

Keywords: Cash Holdings, Corporate Governance, Firm Performance

Suggested Citation

Lee, Cheng-Few, Cash Holdings, Corporate Governance Structure and Firm Valuation (September 1, 2009). Review of Pacific Basin Financial Markets and Policies, Vol. 12, No. 3, pp. 475-508, 2009, Available at SSRN: https://ssrn.com/abstract=1487982

Cheng-Few Lee (Contact Author)

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

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Newark, NJ 07102
United States
732-445-3907 (Phone)
732-445-5927 (Fax)

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