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Politically connected firms and the cash flow sensitivity of cash: International evidence

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  • Kusnadi, Yuanto

Abstract

This paper examines the role of political connections on the cash flow sensitivity of cash using a sample of international firms. The finding reveals that the cash flow sensitivity of cash is lower for politically connected firms than their non-connected counterparts, which is supportive of the precautionary motive of cash holdings. Further analyses reveal that the result is driven by political connections that are made through the directors of the firms and with members of parliament, as well as by differences in country-level institutional infrastructure. Overall, the empirical results corroborate that of previous studies on the relevance of the precautionary motive of cash holdings.

Suggested Citation

  • Kusnadi, Yuanto, 2024. "Politically connected firms and the cash flow sensitivity of cash: International evidence," Finance Research Letters, Elsevier, vol. 69(PB).
    • Handle: RePEc:eee:finlet:v:69:y:2024:i:pb:s1544612324012224
    DOI: 10.1016/j.frl.2024.106193
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    More about this item

    Keywords

    Political connections; Cash flow sensitivity of cash; Precautionary motive of cash holdings; Financial constraints; Country-level institutional infrastructure;
    All these keywords.

    JEL classification:

    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • F54 - International Economics - - International Relations, National Security, and International Political Economy - - - Colonialism; Imperialism; Postcolonialism
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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