Financial constraints, board governance standards, and corporate cash holdings

Choonsik Lee; Heungju Park

doi:10.1016/j.rfe.2015.10.001

Financial constraints, board governance standards, and corporate cash holdings

Choonsik Lee
, Heungju Park

Quinnipiac University
Peking University

Research output: Contribution to journal › Article › peer-review

28 Scopus citations

Abstract

This study examines whether financial constraints and board governance play substitution roles in lowering agency concerns in corporate cash holdings. Using four firm-specific characteristics of financial constraints and 28 forward-looking board governance standards, we find that board governance mitigates agency concerns in cash holdings more significantly for financially less-constrained firms. Consistently, financially less-constrained firms increase the level of board governance and adopt more board governance standards. A natural experiment with the 2007 financial crisis provides robustness to our findings. Our evidence suggests that financial constraints interrelate with the effectiveness of board governance on corporate cash holdings.

Original language	English
Pages (from-to)	21-34
Number of pages	14
Journal	Review of Financial Economics
Volume	28
DOIs	https://doi.org/10.1016/j.rfe.2015.10.001
State	Published - 1 Jan 2016
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 10 Reduced Inequalities

Keywords

Corporate cash holdings
Financial constraints
Internal monitoring

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10.1016/j.rfe.2015.10.001

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abstract = "This study examines whether financial constraints and board governance play substitution roles in lowering agency concerns in corporate cash holdings. Using four firm-specific characteristics of financial constraints and 28 forward-looking board governance standards, we find that board governance mitigates agency concerns in cash holdings more significantly for financially less-constrained firms. Consistently, financially less-constrained firms increase the level of board governance and adopt more board governance standards. A natural experiment with the 2007 financial crisis provides robustness to our findings. Our evidence suggests that financial constraints interrelate with the effectiveness of board governance on corporate cash holdings.",

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AB - This study examines whether financial constraints and board governance play substitution roles in lowering agency concerns in corporate cash holdings. Using four firm-specific characteristics of financial constraints and 28 forward-looking board governance standards, we find that board governance mitigates agency concerns in cash holdings more significantly for financially less-constrained firms. Consistently, financially less-constrained firms increase the level of board governance and adopt more board governance standards. A natural experiment with the 2007 financial crisis provides robustness to our findings. Our evidence suggests that financial constraints interrelate with the effectiveness of board governance on corporate cash holdings.

KW - Corporate cash holdings

KW - Financial constraints

KW - Internal monitoring

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DO - 10.1016/j.rfe.2015.10.001

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JO - Review of Financial Economics

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ER -

Financial constraints, board governance standards, and corporate cash holdings

Abstract

UN SDGs

Keywords

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