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Cash and Corporate Control
Author(s) -
FALEYE OLUBUNMI
Publication year - 2004
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2004.00691.x
Subject(s) - cash , proxy (statistics) , contest , shareholder , business , monetary economics , cash management , market for corporate control , cash flow statement , tender offer , market liquidity , operating cash flow , cash conversion cycle , economics , finance , corporate governance , machine learning , computer science , political science , law
The takeover market is often suggested as appropriate for containing the agency problems of excessive corporate cash holdings. However, recent studies report contradictory evidence. I focus on the takeover‐deterrence effects of corporate liquidity and suggest the proxy contest as an effective alternative control mechanism. I find that proxy fight targets hold 23% more cash than comparable firms, and that the probability of a contest is significantly increasing in excess cash holdings. Proxy fight announcement return also is positively related to excess cash. Following a contest, executive turnover and special cash distributions to shareholders increase, while cash holdings significantly decline.