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State Ownership and Corporate Cash Holdings

Using a unique sample of newly privatized firms from 59 countries, this article provides new evidence about the agency costs of state ownership and new insight into the corporate governance role of country-level institutions. Consistent with agency theory, we find strong and robust evidence that sta...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2018-10, Vol.53 (5), p.2293-2334
Main Authors: Chen, Ruiyuan (Ryan), El Ghoul, Sadok, Guedhami, Omrane, Nash, Robert
Format: Article
Language:English
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Summary:Using a unique sample of newly privatized firms from 59 countries, this article provides new evidence about the agency costs of state ownership and new insight into the corporate governance role of country-level institutions. Consistent with agency theory, we find strong and robust evidence that state ownership is positively related to corporate cash holdings. Moreover, we find that the strength of country-level institutions affects the relation between state ownership and the value of cash holdings. In particular, as state ownership increases, markets discount the value of cash holdings more in countries with weaker institutions.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109018000236