Political connections and the value of cash holdings

•Political connections are not associated with value of cash holdings in the overall sample.•Political connections reduce the value of cash holdings for firms in emerging markets and those in countries with high levels of corruption.•The negative valuation of cash holdings is driven by firms that ar...

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Bibliographic Details
Published in:Finance research letters 2019-09, Vol.30, p.96-102
Main Author: Kusnadi, Yuanto
Format: Article
Language:English
Subjects:
Corruption
Political connections
Value of cash holding
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Summary:•Political connections are not associated with value of cash holdings in the overall sample.•Political connections reduce the value of cash holdings for firms in emerging markets and those in countries with high levels of corruption.•The negative valuation of cash holdings is driven by firms that are politically connected through large shareholders. This study examines how political connections influence the value of cash holdings in an international setting. The main finding reveals that political connections are not associated with the value of cash holdings in the overall sample. However, further analysis demonstrates that political connections are negatively associated with the value of cash holdings for firms in emerging markets and in countries with high levels of corruption. Moreover, the negative valuation of cash holdings is driven by firms that are connected through large shareholders. Overall, the findings provide new insights into the value relevance of cash holdings, especially for politically connected firms.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2019.03.035