Are Multiple Directorships Beneficial in East Asia?

We posit that the benefits and costs of multiple directorships are conditional on firm characteristics. We find firm valuation is positively associated with multiple directorships in (i) firms with high advising needs and (ii) firms with high external financing needs. These beneficial effects of multiple directorships are generally stronger in countries with weak shareholder rights and in firms that are widely held. However, when controlling shareholder hold high voting‐rights to cash‐flow rights, multiple directorships reduce firm valuation, especially in countries with weak shareholder rights and in closely held firms. As multiple directorships increases, cash holdings (capital expenditures) contribute less to shareholder value. The negative association between value of cash (capital expenditure) and busy boards is mitigated in firms with (i) high advising needs, (ii) high external financing needs and (iii) less entrenched ownership structures.     

Parent-subsidiary investment layers and the value of corporate cash holdings

Our study investigates whether agency costs arising from organizational structure in terms of the number of investment layers which connect the parent firm and its lowest-tiered subsidiaries within the corporate pyramid are associated with the value of cash holdings. Using a sample of Taiwanese publicly traded firms, we find that a change of a dollar in cash holdings is associated with less than a dollar change in market value. In line with our expectation, we find that the marginal value of cash decreases with the number of investment layers, supporting the agency theory of excess cash holdings. We also find that the negative association between the number of layers and the value of cash holdings is stronger for firms with high deviation between cash flow and voting rights and for family-controlled firms.     

Excess cash holdings and shareholder value

We examine the determinants of corporate cash holdings in Australia and the impact on shareholder wealth of holding excess cash. Our results show that a trade‐off model best explains the level of a firm’s cash holdings in Australia. We find that ‘transitory’ excess cash firms earn significantly higher risk‐adjusted returns compared to ‘persistent’ excess cash firms, suggesting that the market penalises firms that hoard cash. The marginal value of cash also declines with larger cash balances, and the longer firms hold on to excess cash. The results are consistent with agency costs associated with persistence in excess cash holdings.     

International Evidence on Cash Holdings and Expected Managerial Agency Problems

This article uses managerial control rights data for over 5000firms from 31 countries to examine the net costs and benefitsof cash holdings. We find that when external country-level shareholderprotection is weak, firm values are lower when controlling managershold more cash. Further, when external shareholder protectionis weak we find that firm values are higher when controllingmanagers pay dividends. Only when external shareholder protectionis strong do we find that cash held by controlling managersis unrelated to firm value, consistent with generally prevailingU.S. and international evidence.     

Corporate cash holdings and CEO compensation incentives

We examine the effect of chief executive officer (CEO) compensation incentives on corporate cash holdings and the value of cash to better understand how compensation incentives designed to enhance the alignment of manager and shareholder interests could influence stockholder-bondholder conflicts. We find a positive relation between CEO risk-taking (vega) incentives and cash holdings, and we find a negative relation between vega and the value of cash to shareholders. The negative effect of vega on the value of cash is robust after controlling for corporate governance, is stronger in firms with high leverage, is reversed for unlevered firms, and is not present in financially constrained firms. We also find that the likelihood of liquidity covenants in new bank loans is increasing in CEO vega incentives. Our evidence primarily supports the costly contracting hypothesis, which asserts that bondholders anticipate greater risk-taking in high vega firms and, therefore, require greater liquidity.     

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.     

Corporate cash holdings,foreign direct investment,and corporate governance

The determinants of corporate cash holdings in the context of corporate governance theories have recently been analyzed in the literature. In the present study, the behavior of corporate managers in countries with poor shareholder rights protection is more in conformity with the agency problem theory than other corporate governance theories. Also, smaller firms tend to hold larger cash balances relative to their total assets than their larger counterparts. Foreign Direct Investment (FDI) inflows in today's highly integrated capital markets act as substitutes for corporate cash holdings. When firms in G-7 countries are separated from the ones in other countries, FDI inflows demonstrate different effects on international corporate cash holdings: They are substitutes for cash holdings in the former group of countries but become complements for cash holdings by firms in the latter one.     

Costs of voting and firm performance: Evidence from RegTech adoption in Chinese listed firms

Employing the 2014 mandatory adoption of online shareholder voting in China, we show that the reduction of voting costs through online voting is positively related to participation in shareholder meetings and future firm performance. Our mechanism analysis suggests that the improved firm performance is mainly driven by the enhanced governance role played by informed investors and institutional investors. Further analysis shows that online shareholder voting makes the firms more attractive to mutual fund managers who are far away from the firms. Moreover, we find that the improved firm performance is concentrated in firms with low controlling shareholder ownership, and that online shareholder voting is associated with an increased likelihood of vetoing proposals and lower tunneling.     

Agency Problems at Dual-Class Companies

Using a sample of U.S. dual-class companies, we examine how divergence between insider voting and cash flow rights affects managerial extraction of private benefits of control. We find that as this divergence widens, corporate cash holdings are worth less to outside shareholders, CEOs receive higher compensation, managers make shareholder value-destroying acquisitions more often, and capital expenditures contribute less to shareholder value. These findings support the agency hypothesis that managers with greater excess control rights over cash flow rights are more prone to pursue private benefits at shareholders' expense, and help explain why firm value is decreasing in insider excess control rights.     

International evidence on the non-linear impact of leverage on corporate cash holdings

This paper investigates cash holding behaviour of firms from France, Germany, Japan, the UK and the US using data for 4069 companies over the period 1996–2000. Our focus is particularly on the relation between cash holdings and leverage. We argue that the impact of leverage on cash balances of firms is likely to be non-monotonic. To the extent that leverage of firms acts as a proxy for their ability to issue debt one would expect a negative (substitution effect) relation between leverage and cash holdings. However, as leverage increases firms are likely to accumulate larger cash reserves to minimise the risk of financial distress and costly bankruptcy. Thus, one would expect a positive (precautionary effect) relationship between cash holdings and leverage at high levels of leverage. Our findings provide strong and robust support for a significant non-linear relation between cash holdings and leverage. Additionally, our results show that the impact of leverage on cash holdings partly depends on country-specific characteristics such as the degree of creditor protection, shareholder protection, and ownership concentration.     

Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms

Auditors of foreign cross-listed firms face liability arising from the nature of the institutional monitoring framework of legal claims that can potentially be brought against the auditor in both the home country and the US. This paper is the first to document the relationship between auditor liability and auditor pricing of excess cash holdings for foreign firms cross-listed in the US. Our findings indicate that auditors demand a fee premium for foreign incorporated clients with greater excess cash holdings, consistent with auditors recognizing the potential for legal exposure to agency conflict arising from foreign listed US traded clients. Furthermore, we examine aspects of foreign capital market protections, such as disclosure requirements, the strength of legal enforcement, and the strength of shareholder rights to better understand auditor perception of the liability they incur due to the agency costs associated with excess cash holdings. We find that there is a significant positive association between audit fees and excess cash holdings for firms where the country of incorporation permits greater liability of auditors in criminal and civil litigation. In addition, auditors assign higher audit fees to firms holding greater excess cash incorporated in countries with greater required accounting disclosure, stronger legal enforcement and stronger shareholder rights.     

Managerial ownership of voting rights: A study of public corporations with dual classes of common stock

Managers of firms with dual classes of common stock can choose different quantities of votes for a given cash flow interest by choosing different quantities of the two securities. We study managerial stock holdings in 45 dual class firms and find that vote ownership per se is an important motivation for these holdings in that corporate officers and their families hold a median 56.9% of the votes and 24.0% of the common stock cash flows. We also find significant family involvement in many sample firms, and document four case studies in which explicit acquisition premiums were paid for superior voting shares.     

The effect of financial constraints,investment policy,product market competition and corporate governance on the value of cash holdings

This study empirically investigates the value shareholders place on excess cash holdings and how shareholders’ valuation of cash holdings is associated with financial constraints, firm growth, cash‐flow uncertainty and product market competition for Australian firms from 1990 to 2007. Our results indicate that the marginal value of cash holdings to shareholders declines with larger cash holdings and higher leverage. However, firms that are more financially constrained, that have higher growth rates and that face greater uncertainty exhibit a higher marginal value of cash holdings. These findings are consistent with the explanation that excess cash holdings are not necessarily detrimental to firm value. Firms with costly external financing and that also save more cash for current operating and future investing needs find that the market values these cash hoarding policies favourably. Finally, there is limited evidence of an association between various corporate governance measures and the value of cash holdings for a shorter sample period.     

The dark side of strengthened minority voting power: An innovation perspective

Based on the 2014 regulatory reforms aimed at strengthening the protection of legitimate rights and interests of minority investors in China, we investigate minority shareholders’ short-termism and how minority voting impacts firm innovation. We find that the 2014 reforms effectively motivate minority shareholders to attend shareholder meetings and greatly enhance their voting influence. We also find that enhanced minority voting power after the reforms lowers the number of firms’ patent applications, and this effect is more pronounced for the firms that see the greatest increase in shareholder attendance at shareholder meetings. Moreover, enhanced minority voting power boosts executive turnover-performance sensitivity, thereby undermining firm innovation. Finally, we show that different types of minority shareholders have distinct impacts on firm innovation, depending on their investment horizons. The negative effect of minority voting power is more pronounced for state-owned enterprises (SOEs) than for non-SOEs.     

CEO overconfidence and corporate cash holdings

This study proposes chief executive officer (CEO) overconfidence to be an alternative explanation to corporate cash holdings. We find positive effects of CEO overconfidence on the level of cash holdings and the value of cash, which are mainly due to the investment environments faced by firms. The positive effects of CEO overconfidence on cash holdings level and cash value are barely affected by the traditional motives of cash holdings based on trade-off and agency theories. The analysis of cash sources further explains why firms with overconfident CEOs can aggressively pursue risky investments and maintain large cash holdings at the same time. Although the prior literature indicates that overconfident CEOs tend to avoid equity issues for their capital investments, the contribution to cash savings from equity is higher than that from debt. Additional robustness tests also support our empirical findings.     

Financial crisis,shareholder protection and cash holdings

In this paper, I investigate the relationship between shareholder protection and corporate cash holdings under the impact of the global financial crisis. With a sample of 192,807 observations across 40 countries during the period 2002–2015, I find that the global financial crisis mitigates the controlling effect of shareholder protection on corporate cash holdings. In addition, this mitigating role is stronger in financially constrained firms. Overall, the results suggest that managers are more likely to expropriate shareholders through corporate liquidity policy during a financial crisis.     

Disclosure by firms under voting pressure

Firms with a negative ISS recommendation see significant reduction in shareholder support for their proposals and are likely to face pressure to increase support in upcoming meetings. We find that firms facing voting pressure are significantly more likely to disclose positive content in discretionary sections of Form 8-K that result in higher abnormal stock returns in the months prior to the shareholder meeting. The 8-Ks with good news in discretionary sections, filed prior to the shareholder meeting, are associated with higher support for management proposals in upcoming meetings. Finally, this selective filing of 8-Ks with good news is higher when investors are distracted and lower for family firms. The results point to understudied effect of ISS voting recommendation on firm's selective disclosure.     

The impact of shareholder intervention on overinvestment of free cash flow by overconfident CEOs

This paper examines the impact of shareholder intervention on investment distortions, which we capture using overinvestment of free cash flow by overconfident CEOs. Using this definition and U.S. data for 1996–2014, our fixed effects and difference-in-difference matching estimation results provide consistent evidence that the threat of potential intervention of shareholders can curb overinvestment by overconfident CEOs. Specifically, firms with greater voting premium and hedge fund activism experience less overinvestment and exhibit lower sensitivity of free cash flow to investment. Such disciplining effects are stronger for firms managed by overconfident CEOs. Overall, our results suggest that shareholder intervention is particularly effective at mitigating overinvestment that is more likely to be distorted.     

The strategic use of corporate cash holdings in collective bargaining with labor unions

We provide evidence that firms in more unionized industries strategically hold less cash to gain bargaining advantages over labor unions and shelter corporate income from their demands. Specifically, we show that corporate cash holdings are negatively related with unionization. We also find that this relation is stronger for firms that are likely to place a higher value on gaining a bargaining advantage over unions and weaker for those firms in which lower cash holdings provide less credible evidence that a firm is unable to concede to union demands. Additionally, we show that for unionized firms increases in cash holdings raise the probability of a strike. Finally, we show that unionization decreases the market value of a dollar of cash holdings. Overall, our findings indicate that firms trade-off the benefits of corporate cash holdings with the costs resulting from a weaker bargaining position with labor.     

Cash holdings in family firms: CEO identity and implications for firm value

We investigate the cash holdings policy of family firms and examine potential value implications. Family firms hold more cash than other firms, with an average difference of 2.3% of total assets. This result is driven by firms managed by heir CEOs. While the cash holdings policy of first‐generation family firms is more sensitive to firm risk, consistent with founders’ increased risk aversion, that of later‐generation firms is more sensitive to information asymmetry and agency conflicts. Heir CEOs’ cash policies destroy value, as the marginal value of an additional Euro suffers from a 38.3‐cent discount, on average, relative to non‐family firms.