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State capital and cash holdings in natural private enterprises: New evidence and a new explanation

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  • Yang, Yulong
  • Qian, Youhua
  • Li, Shengnan

Abstract

While prior studies find mixed results on the relation between state ownership and cash holdings in privatized firms, i.e., former state-owned enterprises, this study focuses on the state capital in the widespread natural private enterprises originating from private sectors. We find that state ownership significantly increases cash holdings. And instead of associating state ownership with deteriorated corporate governance, we show it reduces over-investment of free cash flows, especially in the firms with high agency conflicts. Additionally, state ownership increases the value of cash holdings for firm profitability and market valuation. This study extends the cash holding literature and provides more evidence for understanding how state capital influences corporate governance and financial policies.

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  • Yang, Yulong & Qian, Youhua & Li, Shengnan, 2023. "State capital and cash holdings in natural private enterprises: New evidence and a new explanation," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005700
    DOI: 10.1016/j.frl.2022.103393
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