The determinants of corporate cash management policies: Evidence from around the world
Publication Type
Journal Article
Publication Date
1-2011
Abstract
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. (C) 2010 Elsevier B.V. All rights reserved.
Keywords
Legal protection;Financial constraints;Hedging needs;Cash management policy
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Journal of Corporate Finance
Volume
17
Issue
3
First Page
725
Last Page
740
ISSN
0929-1199
Identifier
10.1016/j.jcorpfin.2010.12.002
Publisher
Elsevier
Citation
KUSNADI, Yuanto and WEI, John K. C..
The determinants of corporate cash management policies: Evidence from around the world. (2011). Journal of Corporate Finance. 17, (3), 725-740.
Available at: https://ink.library.smu.edu.sg/soa_research/1711
Additional URL
http://dx.doi.org/10.1016/j.jcorpfin.2010.12.002