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Foreign Ownership and Corporate Cash Holdings in Emerging Markets
Author(s) -
Vo Xuan Vinh
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12130
Subject(s) - business , emerging markets , agency cost , cash , monetary economics , panel data , stock exchange , cash management , agency (philosophy) , sample (material) , operating cash flow , stock (firearms) , foreign ownership , financial system , finance , economics , shareholder , corporate governance , foreign direct investment , mechanical engineering , philosophy , chemistry , macroeconomics , epistemology , chromatography , engineering , econometrics
Abstract This article examines the link between foreign ownership and corporate cash holdings. We utilize a data sample of firms listed on the Ho Chi Minh City stock exchange covering the period 2007–2015. Employing different econometric techniques for panel data, we find that higher foreign ownership is associated with more corporate cash holdings. This finding suggests that foreign investors in the Vietnam stock market are subject to precautionary motive and agency motive forcing firms to hold more cash. However, the outcome suggests potential agency problems because managers might subsequently use this cash reserve for their own advantages. These problems are even more pronounced in emerging markets where investor protection mechanism is weak. Accordingly, this highlights the importance of a monitoring mechanism to refrain corporate managers from investing in value‐destroying projects.