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Financial constraints, board governance standards, and corporate cash holdings
Author(s) -
Lee Choonsik,
Park Heungju
Publication year - 2016
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2015.10.001
Subject(s) - corporate governance , business , cash , accounting , finance , robustness (evolution) , on board , agency (philosophy) , principal–agent problem , financial system , biochemistry , chemistry , philosophy , epistemology , gene , engineering , aerospace engineering
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.