Ownership structure and corporate liquidity policy

This study analyzes the relationship between corporate liquidity (i.e. the fraction of assets invested in cash and marketable securities) and managerial ownership in the firm's stock. We postulate a negative relationship between excess liquidity and managerial stock ownership as the managers�...

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Bibliographic Details
Published in:Managerial and decision economics 1992-07, Vol.13 (4), p.315-322
Main Authors: Papaioannou, George J., Strock, Elizabeth, Travlos, Nickolaos G.
Format: Article
Language:English
Subjects:
Acid test ratios
Arithmetic mean
Asset management
Business structures
Capital expenditures
Cash
Compensation
Competition
Conflicts of interest
Corporate liquidity
Economic rent
Financial management
Human capital
Hypotheses
Liquid assets
Liquidity
Long term debt
Market positioning
Product markets
Research & development expenditures
Statistical analysis
Stock options
Stockholders
Studies
Variables
Volatility
Wages & salaries
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Summary:This study analyzes the relationship between corporate liquidity (i.e. the fraction of assets invested in cash and marketable securities) and managerial ownership in the firm's stock. We postulate a negative relationship between excess liquidity and managerial stock ownership as the managers' interests shift from protecting the value of their human capital to maximizing the value of their stockholdings. This managerial behavior is constrained by the disciplining forces of the firm's product market structure and the market for corporate control. While the tests fail to reveal any significant impact of managerial stock ownership, they show that firm liquidity is positively related to the firm's ability to earn economic rents.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.4090130406