Foreign institutional ownership and corporate cash holdings: Evidence from emerging economies |
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| Institution: | 1. Manning School of Business, University of Massachusetts Lowell, 72 University Avenue, Lowell, MA 01854, United States of America;2. Robert C. Vackar College of Business & Entrepreneurship, University of Texas Rio Grande Valley, 1201 W University Dr, Edinburg, TX 78539, United States of America;3. School of Industrial Management, Ho Chi Minh University of Technology, Vietnam National University – Ho Chi Minh City, 268 Ly Thuong Kiet Street, District 10, Ho Chi Minh City, Viet Nam;4. School of Business, University of Connecticut, 2100 Hillside Road, Storrs, CT 06269, United States of America;1. School of Accountancy, Singapore Management University, Singapore;2. Department of Accountancy, College of Business, City University of Hong Kong, Hong Kong Special Administrative Region;3. College of Business, Sun Yat Sen University, Guangzhou, China |
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| Abstract: | With the increased presence of foreign institutional investors in emerging stock markets, academic interest on the effects of foreign institutions on corporate managerial decisions has notably increased. This paper joins this debate by investigating the effects of foreign institutional ownership on cash holdings, a strategic corporate financing choice. Analysing a sample of firms from 23 emerging economies, the paper shows that, while foreign institutional ownership has a negative effect on cash holdings, it also increases the contribution of cash to firm valuation. These effects are potentially transmitted to cash through mitigation of agency conflicts and alleviation of financing constraints. In all, our findings suggest beneficial effects of foreign institutions on firms' financing structure, as foreign investors contribute to a more efficient and value-enhancing cash policy. |
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