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How friends with money affect corporate cash policies? The international evidence

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  • David Javakhadze
  • Tijana Rajkovic

Abstract

We examine the association between managerial social capital and the cash flow sensitivity of cash in an international setting. We find that social capital reduces the marginal propensity to save cash out of cash flows. This association is stronger for more financially constrained firms, firms with high hedging needs, and firms with more uncertain cash flows. The effect of social capital is partially moderated by the extent of legal protection standards and financial development. We also show that social capital matters for valuation. These findings are robust to alternative model specifications, alternative variable measurement, and tests for endogeneity.

Suggested Citation

  • David Javakhadze & Tijana Rajkovic, 2019. "How friends with money affect corporate cash policies? The international evidence," European Financial Management, European Financial Management Association, vol. 25(4), pages 807-860, September.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:4:p:807-860
    DOI: 10.1111/eufm.12197
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    Cited by:

    1. Mostafa Monzur Hasan & Adrian (Wai‐Kong) Cheung & Lidia Tunas & Hung Wan Kot, 2021. "Firm life cycle and trade credit," The Financial Review, Eastern Finance Association, vol. 56(4), pages 743-771, November.
    2. Bhuyan, Md Nazmul Hasan & Okafor, Collins E. & Cho, Eunho, 2022. "Do friendly boards impact the value of real options?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    3. Chada, Swechha & Saravanan, Palanisamy & Varadharajan, Gopal, 2024. "Socioemotional wealth and cash flow sensitivity of cash: Evidence from India," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).

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