Governance mechanisms, investment opportunity set and SMEs cash holdings

This study analyses the effect of firm characteristics and governance mechanisms on cash holdings for a sample of UK SMEs. The results show that UK SMEs with greater cash flow volatility and institutional investors hold more cash; whereas levered and dividend paying SMEs with non-executive ownership hold less cash. We also find that ownership structure is significant only in explaining the cash holdings for firms with high growth investment opportunities, and leverage is only significant in explaining the cash held by firms with low growth investment opportunities. Our findings suggest that internal governance mechanisms are more effective for SMEs with high growth investment opportunities, while external governance mechanisms, such as capital market monitoring, are more effective for firms with low growth investment opportunities.     

Corporate Governance and Strategic Change in SMEs: The Effects of Ownership,Board Composition and Top Management Teams

This paper investigates how governance mechanisms affect the ability of small- and medium-sized enterprises (SMEs) to introduce strategic change. Previous research typically assumes that governance mechanisms operate independently of each other. Building on agency theory and insights from the literature on small firm governance, we hypothesize that governance variables related to ownership, the board of directors and the top management team all affect strategic change and that it is important to examine the interaction effects of these governance mechanisms. Using a longitudinal sample of over 800 SMEs, our general logic and hypotheses are supported by the analyses. We find that closely held firms exhibit less strategic change than do SMEs relying on more widespread ownership structures. However, to some extent, closely held firms can overcome these weaknesses and achieve strategic change by utilizing outside directors on the board and/or extending the size of the top management teams. Implications for theory and management practice in SMEs are discussed. All three authors have contributed equally to the paper. Their names are listed alphabetically.     

现金持有、融资约束与企业价值——基于门槛回归模型的实证检验

文章基于门槛回归模型,对融资约束是否会影响现金及超额现金与企业价值的关系进行实证检验。结果表明,现金及超额现金与企业价值的关系均存在显著的门槛效应。在弱融资约束企业,现金及超额现金的账面价值高于其市场价值,而在强融资约束企业,现金及超额现金的账面价值低于其市场价值,这支持了代理理论和融资约束理论,说明弱融资约束企业滥用现金的代理问题较为严重,现金持有对企业价值具有负向影响,强融资约束企业持有现金,能够抓住更多投资机会,现金持有对企业价值具有正向影响。     

The financial determinants of corporate cash holdings: Evidence from some emerging markets

This paper investigates corporate cash holdings in developing countries. In particular, we look into the effect of capital structure and dividend policy on cash holdings in Brazil, Russia, India, and China and compare our results with a control sample from the US and the UK. Our sample contains 1992 firms across these countries for the period 2002–2008. We employ Instrumental Variables analysis to control for the endogeneity of the financial policies (cash holdings, capital structure, and dividend policy). Our results show some evidence that capital structure and dividend policy affect cash holdings. There are similarities between developed and developing countries on the factors determining corporate cash holdings. The results of our cross-country model provide evidence that capital structure, dividend policy, and firm size are important factors in determining cash holdings. Finally, we show that firms operating in countries with low shareholder protection hold more cash.     

Variation in Corporate Governance and Firm Valuation – an International Study

In this paper, we investigate the types of firms that are likely to deviate from common practice in corporate governance of their home countries and examine how the deviation is correlated with firm value. Our results show that firms with higher institutional holdings, lower insider holdings, and higher sales growth are more likely to deviate from common practice in civil law countries, whereas, in common law countries, especially in the USA, firms with lower institutional holdings, higher insider holdings, and lower sales growth are likely to deviate from common practice. We document a strong positive correlation between governance deviation and firm value in civil law countries. This relationship is robust to different testing and sample selection methods. The results, however, are mixed for US firms and not significant in other common law countries. Using the deviation from common practice as a proxy of firm‐level impact on corporate governance, our results provide evidence that firm‐level effect matters in governance quality and the effect varies across countries.     

Optimal cash holdings under heterogeneous beliefs

This paper explores a one‐period model for a firm that finances its operations through debt provided by heterogeneous creditors. Creditors differ in their beliefs about the firm's investment outcomes. We show the existence of Stackelberg equilibria in which the firm holds cash reserves in order to provide incentives for pessimistic creditors to invest in the firm. We find interest rates and cash holdings to be complementary tools for increasing debt capacity. In markets with a high concentration of capital across a small interval of pessimistic creditors or by a few large creditors, cash holdings is the preferred tool to increase the debt capacity of the firm.     

Cash holdings in SMEs: speed of adjustment,growth and financing

This paper studies the effect of growth opportunities, financial constraints and financial distress on the speed of adjustment of small and medium-sized enterprises (SMEs) to their target cash holdings. We use a sample of Spanish SMEs from the period of 1998 to 2012. The results support the existence of a target cash holding level to which small firms attempt to converge. Additionally, consistent with the precautionary motive for cash holdings, the results show that SMEs with greater growth opportunities adjust more quickly to their target cash holding level to preserve their financial flexibility and to be able to take advantage of profitable investment opportunities when they arise. Moreover, for SMEs in financial difficulties, the adjustment speed of cash is higher to avoid financial distress costs. Finally, we observe a faster speed of adjustment for cash holding in the crisis period for all firms, as a possible response to the credit restrictions faced by SMEs.     

Corporate cash holdings,uncertainty avoidance,and the multinationality of firms

We examine the relationship between uncertainty avoidance, multinationality and firm cash holdings. We develop several hypotheses from corporate finance and multinational firm theory, positing that cultural factors as well firm multinationality influence corporate cash holdings. In particular, firms in countries with high uncertainty avoidance hold more cash as a way to hedge against undesired states of nature. At the same time, firm multinationality moderates the effects culture has on the firm's holdings of liquid assets. Based on a large panel of firms in fifty countries, we present evidence consistent with these hypotheses. Firms in countries with high levels of uncertainty avoidance tend to hold more cash. Against commonly held views in cash management, the degree of multinationality of the firm is positively correlated with holdings of cash. At the same time, the effect of national culture on firm's cash holdings is lower for multinationals. These results are economically significant.     

公司治理机制对公司现金持有量的影响——来自我国上市公司的经验证据

本文以我国部分上市公司为样本实证研究了公司治理机制对公司现金持有量的影响。结果表明,公司治理机制并未对公司现金持有量形成显著影响,从公司现金持有量的视角为我国上市公司治理机制的不完善性提供了经验证据。     

公司治理结构与现金持有量

经理人‘自利动机’可能会影响到公司现金持有量以及现金使用。不同治理结构又会对‘自利动机’构成不同的约束,从股权集中度、经理人所有权以及董事会构成、外部投资者受保护的程度等角度分析公司现金持有量与公司治理结构的关系,进一步研究公司治理结构与现金持有量,对我国上市公司实现现代化管理有重要意义。     

Alignment or entrenchment? Corporate governance and cash holdings in growing firms

This study contends that the association between corporate cash holdings and corporate governance is subject to the investment environments that firms face. For example, firms with an abundance of investment opportunities have a strong incentive to hold cash in order to maintain their competitive positions. Shareholders accept high levels of cash holdings in such growing firms if corporate governance can protect their interests. This study examines the effects of corporate governance on cash holdings for a sample of high-tech firms. The results show that CEO ownership, the directorship of venture capitalists (VCs), and independent directors play critical roles in corporate cash policy. In addition, the boards are more effective when the firms' CEOs are also their founders or when VCs hold a large stake of company shares. The effects of corporate governance are more significant in younger firms while the effects of firm-specific economic variables are more significant in older firms in the sample.     

Why do firms hold so much cash? An innovation explanation

Theory holds that knowledge has positive economic consequences. While US corporations defend record high level cash holdings citing the precautionary motive in response to changing firm characteristics, I find that knowledge‐based innovation can partially explain these changes. Using distance to the nearest research university as a measure of knowledge intensity, I show that knowledge‐intensive firms hold more cash, even after controlling for firm R&D. Moreover, knowledge‐intensive firms exhibit higher marginal value of cash and save more cash from cash flows than their less knowledge‐intensive counterparts. Overall, the precautionary motive appears to dominate the agency motive, with the effect of knowledge on cash holdings strengthening over time. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

Investment Committee,Corporate Cash Holdings and Corporate Life Cycle

We investigate the association between voluntary formation of board investment committee (IC) and corporate cash holdings of nonfinancial firms over the corporate life cycle stages for a large sample of Gulf Cooperation Council firms during 2005–2016. We find that IC increases corporate cash holdings in growth and maturity stages of firm, compared to introduction, shake‐out, and decline stages. These results have important implications for investors, policy makers, and regulators. Our findings are robust to various econometrics specifications.     

Why Do Firms in Customer–Supplier Relationships Hold More Cash?

A firm is in customer–supplier relationships when its business depends on a small number of major customers/suppliers. In this paper, we provide evidence that relationship‐specific investments undertaken by firms in customer–supplier relationships are associated with high cash holdings in these firms. The evidence is consistent with the prediction of Titman's stakeholder theory that a firm relying on relationship‐specific investments maintains a high cash reserve as a cushion to sustain its relationship‐specific investments when negative shocks occur. Our findings suggest that relationship‐specific investments are important determinants of the precautionary motive to hold cash.     

SME Policy, Financial Structure and Firm Growth: Evidence From Japan

This paper investigates the effects of public policy and financial structure on the growth of small and medium enterprises (SMEs). Using a panel data set on SMEs in the Japanese manufacturing industry, we examine whether or not the SME Creative Business Promotion Law (CBPL) and financial structure affect firm growth. It is found that SMEs approved by prefectural governors under this law tend to increase assets. Further, we provide evidence that the CBPL and cash flow have an impact on the growth of younger SMEs.     

Cash holdings and corporate governance in family-controlled firms

This study examines the association between corporate governance and cash policy within family-controlled firms. Family businesses are complex, because, in addition to dealing with common business requirements and opportunities, they must consider the needs and desires of the family owners. The results of this study show that the impact of corporate governance, with its separation of control rights and cash flow rights, director-ownership-in-pledge ratio and proportion of independent directors on cash policy, differs between family-controlled and nonfamily-controlled firms. Separation of seat control rights and cash flow rights, as well as chair duality, significantly affects the cash policy within different levels of cash holdings in firms.     

Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators

Small Business Economics - For the first time, this paper examines the way in which cash holdings affect firm operating performance in a wide sample of European small and medium-sized enterprises...     

Political Connections,Government Intervention and Acquirer Performance in Cross‐border Mergers and Acquisitions: an Empirical Analysis Based on Chinese Acquirers

The extant literature suggests that the political connections enjoyed by Chinese acquiring firms have both positive and negative effects on their performance in cross‐border mergers and acquisitions (CBMA). We employed firm‐level data on Chinese acquirers from 2001 to 2012, demonstrating that the effect of political connections on mergers and acquisitions performance is determined by external government intervention. Holding the level of political connections constant, the greater the degree of government intervention is, the worse the acquirer's performance in cross‐border mergers and acquisitions will be. We also demonstrated that political connections affect acquirer performance in cross‐border mergers and acquisitions through the channel of preferential access to bank financing, and the acquiring firms' high cash holdings, which are encouraged by the ease of bank financing, have a negative effect on acquirer CBMA performance. Using the Blinder‐Oaxaca decomposition, we investigated changes in the Chinese acquirers' performance following changes in the external policy environment in 2008 and the effect of political connections and other factors on this change.     

高管的银行背景、所有权性质与企业现金持有决策

本文分析高管的银行背景是否影响企业现金持有决策,以及这种影响在国有企业和民营企业之间是否存在显著差异。基于中国非金融类上市公司2003－2013年的数据,检验发现,那些聘请具有银行背景的人士担任高管的企业具有显著更低的现金持有水平和更快的现金持有调整速度。相对于国有企业,高管银行背景对企业现金持有决策的影响在民营企业显著更强。上述研究结论有助于揭示社会资本在促进企业发展中的具体运行机制,为上市公司做出更优的现金持有决策具有重要的启示意义。     

Corporate Social Responsibility That “Pays”: A Strategic Approach to CSR for SMEs

This study adopts a strategic approach to corporate social responsibility (CSR), puts forward a model of CSR activities that enhance small and medium enterprises (SMEs) growth, and argues that by aligning CSR activities with the competitive strategy of the firm, SMEs enhance firm growth. We test this model using multinomial logistic analysis and data from a survey with 211 U.K.‐based SMEs. We find that CSR activities related to the community enhance firm growth for all SMEs, but especially for firms adopting a cost leadership strategy, and that CSR activities related to the workforce are crucial to avoid sales decline, especially for SMEs adopting a differentiation or a quality‐driven strategy. We also find that environment‐related CSR activities are not beneficial for SMEs' growth and that human rights–related CSR activities slow growth for firms adopting a differentiation or a quality‐driven strategy. Finally, we put forward managerial and policy recommendations.