Corporate Cash Holdings and Political Connections

Hill, Matthew D.; Fuller, Kathleen P.; Kelly, G. Wayne; Washam, Jim

doi:10.2139/ssrn.1601502

Cited by 19 publications

(27 citation statements)

References 16 publications

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“…One obvious reason is that political connections might be established through lobbying, which would likely be paid for through a corporation's stock of cash. For example, Hill, Fuller, Kelly, and Washam () use lobbying expenses as a measure of political connectedness and find that firms with greater lobbying expense held less cash. However, under the view that politically connected firms are likely to experience agency problems, Boubakri, El Ghoul, and Saffar () find that politically connected firms held more cash relative to less‐connected peer firms.…”

Section: Literature Reviewmentioning

confidence: 99%

Corporate decision making in the presence of political uncertainty: The case of corporate cash holdings

Hankins

Stone

Cheng

et al. 2019

The Financial Review

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Using a quarterly panel of U.S. corporations over the period 1985-2014, we show that corporate managers respond to political uncertainty and economic policy uncertainty shocks in different ways. We proxy for political uncertainty using the Partisan Conflict Index and employ a prevalent empirical macroeconomic methodology to construct structural shocks that are orthogonal to shocks captured by the Economic Policy Uncertainty Index. Following a political uncertainty shock, corporations increase cash but do not adjust investment. Alternatively, following an economic policy uncertainty shock, firms appear to draw on cash and reduce capital spending to increase research and development spending.

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Section: Literature Reviewmentioning

confidence: 99%

Corporate decision making in the presence of political uncertainty: The case of corporate cash holdings

Hankins

Stone

Cheng

et al. 2019

The Financial Review

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“…More specifically, connected firms are able to evade the high transaction costs and financial market uncertainties because of privileged treatment in the credit market. Effectively, these firms do not have an incentive to hoard liquid assets at similar levels to those firms lacking such relationships (Hill et al, 2014). Consequently, the demand for cash reserves becomes further weakened.…”

Section: Introductionmentioning

confidence: 99%

Political connections and corporate financial decision making

Belghitar

Clark

Saeed

2018

Rev Quant Finan Acc

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This paper investigates whether political connections influence managerial financial decisions. Our study reveals that those firms that have a politician on its board of directors are highly leveraged, hold large excess cash and are associated with low quality financial reporting compared to their non-connected counterparts. These effects escalate with the strength of the connected politician and whether he or his party is in power. The winning party effect is observed to be stronger than victory by the politician himself. Overall, our paper provides strong evidence that political connection is a two-edged sword. It is indeed a valuable resource for connected firms, but it comes at a cost of poor investor protection.

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“…As shown by prior studies, connected firms benefit from easy access to finance and are more likely to be bailed out in the event of financial distress (Boubakri et al 2008;Faccio 2006;and Khwaja and Mian, 2005). They are, therefore, unlikely to hoard large cash as a precautionary or transactions motives 2 (Hill et al, 2014). However, from the agency perspective, connected firms are considered as poorly governed and subject to more severe agency problems (Chaney et al, 2011).…”

Section: Excess Cash and Political Connectionsmentioning

confidence: 97%

Political Connections and Corporate Financial Decision Making

2016

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This paper investigates whether political connections influence managerial financial decisions.Our study reveals that those firms that have a politician on its board of directors are highly leveraged, hold large excess cash and are associated with low quality financial reporting compared to their non-connected counterparts. These effects escalate with the strength of the connected politician and whether he or his party is in power. The winning party effect is observed to be stronger than victory by the politician himself. Overall, our paper provides strong evidence that political connection is a two-edged sword. It is indeed a valuable resource for connected firms, but it comes at a cost of poor investor protection.

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Corporate Cash Holdings and Political Connections

Cited by 19 publications

References 16 publications

Corporate decision making in the presence of political uncertainty: The case of corporate cash holdings

Corporate decision making in the presence of political uncertainty: The case of corporate cash holdings

Political connections and corporate financial decision making

Political Connections and Corporate Financial Decision Making

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