The determinants of corporate cash management policies: Evidence from around the world

We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firm...

Full description

Saved in:
Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2011-06, Vol.17 (3), p.725-740
Main Authors: Kusnadi, Yuanto, Wei, K.C. John
Format: Article
Language:English
Subjects:
Cash flow
Cash management
Cash management policy
Financial constraints
Hedging
Hedging needs
International
Investment policy
Legal protection
Legal protection Financial constraints Hedging needs Cash management policy
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firms in countries with weak legal protection. This relationship is most pronounced for firms that are financially constrained and those with high hedging needs. More importantly, we do not find evidence that financial development plays an incremental impact on the cash flow sensitivity of cash, after controlling for the effect of legal protection. Therefore, we argue that the legal protection of investors (rather than financial development) represents the first-order effect in influencing international firms' cash management policies. The results are robust to alternative specifications. In general, our findings reinforce the importance of country-level legal protection of investors in mitigating the effects of firm-level financial constraints and hedging needs on corporate cash management policies.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2010.12.002