Cash Holdings and Corporate Diversification

This paper studies the relation between corporate liquidity and diversification. The key finding is that multidivision firms hold significantly less cash than stand‐alone firms because they are diversified in their investment opportunities. Lower cross‐divisional correlations in investment opportunity and higher correlations between investment opportunity and cash flow correspond to lower cash holdings, even after controlling for cash flow volatility. The effects are strongest in financially constrained firms and in well‐governed firms, and correspond to efficient fund transfers from low‐ to high‐productivity divisions. Taken together, these results bring forth an efficient link between diversification and corporate liquidity.     

Corporate Cash Reserves and Acquisitions

Cash-rich firms are more likely than other firms to attempt acquisitions. Stock return evidence shows that acquisitions by cash-rich firms are value decreasing. Cash-rich bidders destroy seven cents in value for every excess dollar of cash reserves held. Cash-rich firms are more likely to make diversifying acquisitions and their targets are less likely to attract other bidders. Consistent with the stock return evidence, mergers in which the bidder is cash-rich are followed by abnormal declines in operating performance. Overall, the evidence supports the agency costs of free cash flow explanation for acquisitions by cash-rich firms.     

Information Asymmetry and Corporate Cash Holdings

This study analyzes the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, this study shows that companies that operate in environments with higher information asymmetry have smaller cash holdings. This study continues to find a negative relationship between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference‐in‐difference tests employing brokerage‐firm merger and closure events. On the whole, the results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.     

公司特征、股权结构与现金持有量

在中国特定的制度和治理背景下探讨企业特征与股权结构对企业现金持有量的影响,并从静态和动态两个角度进行实证研究的结果表明,虽然静态实证结果显示权衡理论、代理理论和融资优序理论都能一定程度上解释中国企业的现金持有行为,但动态实证结果显示中国上市公司的现金持有量具有动态的均值复归趋势。这符合权衡理论和代理理论的预期,但不符合融资优序理论预期。     

大股东控制、市场化程度与公司现金持有水平

运用2003～2008年我国所有非金融类A股上市公司的样本数据,从大股东控制视角出发,重点关注第一大股东持股比例、实际控制人性质和公司所在地区市场化程度对于公司现金持有水平的共同作用。结果表明,第一大股东持股比例与公司现金持有量水平正相关,实际控制人为国有的比非国有的上市公司的现金持有量高;公司外部治理环境的改善,有助于减轻由第一大股东持股比例以及实际控制人性质对公司现金持有量造成的负面影响。     

Product Market Threats and the Value of Corporate Cash Holdings

We construct a model to show that predatory strategies by a financially strong rival can cause a financially weak firm to underinvest. This threat intensifies when the two firms produce similar products and share similar future investment opportunities. We show that cash holdings become more valuable by providing liquidity to fund investment opportunities as they emerge, thereby mitigating the underinvestment problem. Empirical evidence supports these model predictions. The value of cash is significantly higher for firms facing higher predatory threats. The results are robust to various controls for financial constraints, corporate governance, risk factors, and industry‐level measures of product market competition. An identification strategy that exploits exogenous variation in financial constraints further corroborates the causal effect of predatory threats on the value of cash.     

Labor Union Effect on Corporate Cash Holdings and Their Marginal Value

By using panel data from Korean listed firms, we find that unionized firms strategically hold less cash to enhance their bargaining power against labor unions. We also find that unionized firms are likely to reduce the marginal value of their cash holdings, thereby decreasing shareholder value from the agency theory perspective. This finding complements the agency theory argument that managers tend to waste corporate resources by hoarding cash, particularly when faced with increased information asymmetry and financial constraints. Overall, our results suggest that information-related financial constraints and agency problems are likely to co-exist in unionized firms.     

Earnings Quality Effect on Corporate Excess Cash Holdings and Their Marginal Value

By using panel data from Korea’s listed firms, we find that firms with poor earnings quality are more likely to accumulate excess cash holdings, perhaps in an attempt to buffer themselves from information asymmetry problems. We also find that firms with poor earnings quality are more likely to discount the marginal value of their excess cash holdings because their shareholders appear to question the reason for such cash policy changes from the agency theory perspective. Overall, our results suggest that information asymmetry and agency problems are likely to co-exist in firms with poor earnings quality.     

Refinancing Risk and Cash Holdings

We find that firms mitigate refinancing risk by increasing their cash holdings and saving cash from cash flows. The maturity of firms’ long‐term debt has shortened markedly, and this shortening explains a large fraction of the increase in cash holdings over time. Consistent with the inference that cash reserves are particularly valuable for firms with refinancing risk, we document that the value of these reserves is higher for such firms and that they mitigate underinvestment problems. Our findings imply that refinancing risk is a key determinant of cash holdings and highlight the interdependence of a firm's financial policy decisions.     

Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings

This paper shows that large cash reserves lead to systematic future market share gains at the expense of industry rivals. Using shifts in import tariffs to identify exogenous intensification of competition, difference‐in‐difference estimations support the causal impact of cash on product market performance. Moreover, the analysis reveals that the “competitive” effect of cash is markedly distinct from the strategic effect of debt on product market outcomes. This effect is stronger when rivals face tighter financing constraints and when the number of interactions between competitors is large. Overall, the results suggest that cash policy encompasses a substantial strategic dimension.     

The Influence of a Credit Rating Change on Corporate Cash Holdings and Their Marginal Value

We examine the influence of credit rating changes on corporate excess cash holdings. We find that downgraded firms increase excess cash holdings by approximately 3% of total noncash assets, compared to a matched sample of firms without a rating change. We largely observe no significant cash policy change following upgrades. While our findings support existing studies on the value of precautionary cash hoarding in the face of increased financial constraint, we find hoarding is value‐decreasing for shareholders. The marginal value of excess cash declines by at least 40% for downgraded firms and much more so when firms have histories of excess cash hoarding.     

中国上市公司高管学术经历对企业现金持有的影响

依据沪深A股上市公司2008-2017年数据,考量高管学术经历对企业现金持有的影响。结果表明：高管学术经历通过风险特质和创新活动影响现金持有水平;高管学术经历与现金持有水平正相关,行业竞争的缓和会削弱二者的正相关关系;相对于国有企业,高管学术经历对非国有企业现金持有水平的影响更显著。     

The Determinants of REIT Cash Holdings

The factors influencing the cash holdings of REITs are examined with the view that the REIT industry should yield new information regarding the drivers of corporate cash policy due to their unique operating conditions. The availability of REIT line of credit data also allows us to test the association between cash holdings and line of credit access and use. Data constraints in prior investigations have left this an unresolved empirical question in the cash holdings literature. The baseline results show that REIT cash holdings are inversely related to funds from operations, leverage, and internal advisement and are directly related to the cost of external finance and growth opportunities. Cash holdings are also negatively associated with credit line access and use. The results imply that REIT managers elect to hold little cash to reduce the agency problems of cash flow thereby increasing transparency and reducing the future cost of external capital.

内部控制、现金持有及经济后果

以我国A股上市公司为研究样本,本文系统研究了内部控制质量对于企业现金持有的影响及作用机制。实证结果表明,内部控制质量改善能够显著提高企业的现金持有价值,即投资者对内部控制质量高的企业的现金持有给予了显著更高的定价;其作用机制在于,内部控制质量的完善有助于抑制企业内部对自由现金流的过度投资,从而有助于企业更高效地持有相对较多现金以预防未来经营中的不确定性。本文的研究丰富和拓展了内部控制及现金持有等相关领域的研究文献,同时印证了近些年我国监管机构致力于内控体系规范建设的重要现实意义。     

National Culture and the Valuation of Cash Holdings

Prior studies document that national culture traits are systematically related to cash holdings and attribute this to managerial cultural predispositions. However, it is possible that these preferences reflect investors’ cultural preferences and that managers are simply catering to investors’ preferences. It is also not clear whether the cash holding effects previously documented are value maximizing. By examining the impact of national culture traits on cash valuation, we are able to provide insight into these questions. Specifically, we examine the effect of three national culture traits – individualism, uncertainty avoidance and long‐term orientation – on firm cash valuation. Our results suggest that the previously observed effects of cultural traits on cash holdings and attributed to managerial cultural biases do not reflect investors’ preferences and are not value maximizing.     

Cash and Corporate Control

The takeover market is often suggested as appropriate for containing the agency problems of excessive corporate cash holdings. However, recent studies report contradictory evidence. I focus on the takeover‐deterrence effects of corporate liquidity and suggest the proxy contest as an effective alternative control mechanism. I find that proxy fight targets hold 23% more cash than comparable firms, and that the probability of a contest is significantly increasing in excess cash holdings. Proxy fight announcement return also is positively related to excess cash. Following a contest, executive turnover and special cash distributions to shareholders increase, while cash holdings significantly decline.     

Disclosure Regulation and Corporate Acquisitions

This paper examines the effect of disclosure regulation on the takeover market. We study the implementation of a recent European regulation that imposes tighter disclosure requirements regarding the financial and ownership information on public firms. We find a substantial drop in the number of control acquisitions after the implementation of the regulation, a decrease that is concentrated in countries with more dynamic takeover markets. Consistent with the idea that the disclosure requirements increased acquisition costs, we also observe that, under the new disclosure regime, target (acquirer) stock returns around the acquisition announcement are higher (lower), and toeholds are substantially smaller. Overall, our evidence suggests that tighter disclosure requirements can impose significant acquisition costs on bidders and thus slow down takeover activity.