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Corporate Governance and Firm Cash Holdings in the U.S

In: Corporate Governance

Author

Listed:
  • Jarrad Harford

    (University of Washington)

  • Sattar A. Mansi

    (Virginia Tech)

  • William F. Maxwell

    (Southern Methodist University)

Abstract

Using governance metrics based on antitakeover provisions and inside ownership, we find that firms with weaker corporate governance structures actually have smaller cash reserves. When distributing cash to shareholders, firms with weaker governance structures choose to repurchase instead of increasing dividends, avoiding future payout commitments. The combination of excess cash and weak shareholder rights leads to increases in capital expenditures and acquisitions. Firms with low shareholder rights and excess cash have lower profitability and valuations. However, there is only limited evidence that the presence of excess cash alters the overall relation between governance and profitability. In the U.S., weakly controlled managers choose to spend cash quickly on acquisitions and capital expenditures, rather than hoard it.

Suggested Citation

  • Jarrad Harford & Sattar A. Mansi & William F. Maxwell, 2012. "Corporate Governance and Firm Cash Holdings in the U.S," Springer Books, in: Sabri Boubaker & Bang Dang Nguyen & Duc Khuong Nguyen (ed.), Corporate Governance, edition 127, pages 107-138, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-31579-4_5
    DOI: 10.1007/978-3-642-31579-4_5
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