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International Corporate Governance and Corporate Cash Holdings

Amy Dittmar, Jan Mahrt-Smith and Henri Servaes
The Journal of Financial and Quantitative Analysis
Vol. 38, No. 1 (Mar., 2003), pp. 111-133
DOI: 10.2307/4126766
Stable URL: http://www.jstor.org/stable/4126766
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
International Corporate Governance and Corporate Cash Holdings
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Abstract

Agency problems are an important determinant of corporate cash holdings. For a sample of more than 11,000 firms from 45 countries, we find that corporations in countries where shareholders rights are not well protected hold up to twice as much cash as corporations in countries with good shareholder protection. In addition, when shareholder protection is poor, factors that generally drive the need for cash holdings, such as investment opportunities and asymmetric information, actually become less important. These results are stronger after controlling for capital market development. Indeed, consistent with the importance of agency costs, we find that firms hold larger cash balances when access to funds is easier. Our evidence is consistent with the conjecture that investors in countries with poor shareholder protection cannot force managers to disgorge excessive cash balances.

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