Financial constraints,board governance standards,and corporate cash holdings

This study examines whether financial constraints and board governance play substitution roles in lowering agency concerns in corporate cash holdings. Using four firm-specific characteristics of financial constraints and 28 forward-looking board governance standards, we find that board governance mitigates agency concerns in cash holdings more significantly for financially less-constrained firms. Consistently, financially less-constrained firms increase the level of board governance and adopt more board governance standards. A natural experiment with the 2007 financial crisis provides robustness to our findings. Our evidence suggests that financial constraints interrelate with the effectiveness of board governance on corporate cash holdings.