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Corporate cash holdings and political connections

Author

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  • Matthew Hill
  • Kathleen Fuller
  • G. Kelly
  • Jim Washam

Abstract

We examine the relation between corporate liquidity and political connections measured via lobbying expenditures. This is an interesting question as many of the motives for holding cash should be diminished by political connections. Results indicate a significant and inverse relation between cash levels and lobby expenses and that the marginal value of cash decreases with lobbying. Taken together, these findings suggest firms react optimally to the reduced benefits of cash linked to political connections and that the market recognizes the weakened benefits of cash. Overall, our research shows another way political connections can shape corporate policy. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Matthew Hill & Kathleen Fuller & G. Kelly & Jim Washam, 2014. "Corporate cash holdings and political connections," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 123-142, January.
    • Handle: RePEc:kap:rqfnac:v:42:y:2014:i:1:p:123-142
    DOI: 10.1007/s11156-012-0336-6
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    More about this item

    Keywords

    Cash; Liquidity; Corporate lobbying; Political connections; G3; G320;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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