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Corporate governance and cash holdings: Evidence from worldwide board reforms

Author

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  • Chen, Ruiyuan (Ryan)
  • Guedhami, Omrane
  • Yang, Yang
  • Zaynutdinova, Gulnara R.

Abstract

Using staggered board reforms as a quasi-natural experiment and a difference-in-differences approach, this study examines the impact of corporate governance on cash holdings in 41 countries. We find that board reforms are followed by significant reductions in cash holdings. This effect is more pronounced for firms with weaker pre-reform corporate governance and for firms from countries with weaker institutional environments. Analysis of cash spending suggests that, following board reforms, firms are more likely to use cash to increase R&D expenditures, dividend payouts, and share repurchases, but not to increase capital or acquisition expenditures. Finally, the results indicate that enhanced corporate governance following board reforms leads to higher (lower) cash (dividend payouts) values, consistent with the view that board reforms strengthen corporate governance.

Suggested Citation

  • Chen, Ruiyuan (Ryan) & Guedhami, Omrane & Yang, Yang & Zaynutdinova, Gulnara R., 2020. "Corporate governance and cash holdings: Evidence from worldwide board reforms," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302157
    DOI: 10.1016/j.jcorpfin.2020.101771
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    More about this item

    Keywords

    Board reforms; Cash holdings; Institutions; Value of cash; Corporate governance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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