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State Ownership and Corporate Cash Holdings

Published online by Cambridge University Press:  31 July 2018

Ruiyuan (Ryan) Chen ,
Sadok El Ghoul ,
Omrane Guedhami  and
Robert Nash
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Abstract

Using a unique sample of newly privatized firms from 59 countries, this article provides new evidence about the agency costs of state ownership and new insight into the corporate governance role of country-level institutions. Consistent with agency theory, we find strong and robust evidence that state ownership is positively related to corporate cash holdings. Moreover, we find that the strength of country-level institutions affects the relation between state ownership and the value of cash holdings. In particular, as state ownership increases, markets discount the value of cash holdings more in countries with weaker institutions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 5 , October 2018 , pp. 2293 - 2334
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank Najah Attig, Jarrad Harford (the editor), Stefano Lugo, William Megginson (the referee), John Puthenpurackal, He Wang, Zuobao Wei, Qiping Xu, Suyan Zheng, seminar participants at Kyoto University and Saint Mary’s University, and participants at the 2016 Financial Management Association Meeting, the 2016 Midwest Finance Association Meeting, the 2016 Southwestern Finance Association Conference, the 2016 World Finance and Banking Symposium, and the 2015 Paris Financial Management Conference for their insightful comments. We appreciate generous financial support from Canada’s Social Sciences and Humanities Research Council.

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