Information Asymmetry and Corporate Cash Holdings

Abstract

This study analyzes the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, this study shows that companies that operate in environments with higher information asymmetry have smaller cash holdings. This study continues to find a negative relationship between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference-in-difference tests employing brokerage-firm merger and closure events. On the whole, the results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.

The Moderating Effect of Firm Characteristics on the Association Between Accounting Conservatism and Cash Holdings

“…Regarding the effect of conservatism on CASH, there are two opinions, the first opinion supports a positive association between them, since some prior studies interested in International Journal of Accounting and Financial Reporting ISSN 2162-3082 2019 determining reasons of conservatism existence, one of them is decreasing information asymmetry (IA) (Watts, 2003, Kim et al, 2013, Machdar & Mayangsari, 2015, Balakrishnan et al, 2016, Atlawel and Shaheen, 2017and Isniawati et al, 2018, since conservatism reduces both IA and morally hazardous agency conflicts between managers and less informed other related parties (Opler et al, 1999), this reduction pushes these parties to decrease cost of capital due to mitigating interests' conflicts between owners, managers and debt holders as a result from decreasing risk related to pay excessive dividends (Ahmed et al, 2002, Ball and Shivakumar, 2005, and Lara et al, 2011. In the other dimension, according to transaction model also, there is a negative association between IA and CASH, since increasing IA due to decreasing conservatism decreases shareholders trust in management, which pushes to increase the cost of capital (Ahmed et al, 2002, Chung et al, 2015and Shin et al, 2017, management is forced to decrease CASH to cover the increase in the cost of capital. Dittmar and Mahrt-Smith (2007) confirms this result when they mention that firms with good shareholders protection rights have half CASH of firms with poor shareholder protection rights.…”

The Effect Of Dividend, Board Characteristics, Information Asymmetry Towards Cash Holding On Manufacturing Company

“…According to the results of research from Information asymmetry has no effect on cash holding. According to research conducted by [3] information asymmetry has an influence and has a negative relationship to cash holding and according to the results of research conducted by [13] information asymmetry has no effect on cash holding.…”

“…Companies can be avoided from lack of funds and can finance unexpected needs. According to [3] if the company has large amounts of cash it will not damage the company's benefits companies to save cash to overcome opportunity costs [6]. Motives stand guard to prove that the cash holding can help companies invest or finance projects.…”

Políticas de caixa no Brasil: um estudo considerando restrições financeiras e governança corporativa

“…Além do mais, Kim, Mauer e Sherman (1998), Opler et al (1999), Gao, Harford e Li (2013) e Chung et al (2015) salientam que as reservas de caixa em excesso agravam os problemas de agência, fornecendo para os gestores um montante de caixa livre acumulado que pode ser utilizado em seu próprio benefício às custas dos acionistas.…”

“…E estudos anteriores como os de Harford (1999), Opler et al (1999), Dittmar, Mahrt-Smith e Servaes (2003) e Chung et al (2015) citam que o nível de caixa das organizações é influenciado por diversos fatores, vide o setor da empresa, suas oportunidades de investimento, os custos de transação, razões precaucionarias, impostos, ambiente legal e normativos, incertezas dos fluxos de caixa, estrutura de propriedade, mecanismos de governança, disponibilidade de crédito a custos acessíveis, etc.…”