Peer effects on corporate cash holdings

Chen, Yiwen; Chan, Konan; Chang, Yuanchen

doi:10.1016/j.iref.2019.02.008

Cited by 78 publications

(88 citation statements)

References 32 publications

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“…According to social learning theory, corporate firms learn the business practices from their peers and working capital management is one from these practices. These findings of study are consistent with empirical findings of previous studies in which they have confirmed the adherence of corporate firms with their peer' s business decisions (Leary, 2014;Chen, 2017;Chen et al, 2019). More specific, the study of Anwar and Akhtar (2018) has empirically documented that Pakistan non-financial sector firms adhere with their peer investment policy.…”

Section: Variables Descriptionsupporting

confidence: 90%

“…The number of studies have confirmed the mimicking or herding behavior of corporations in variety of business decisions i.e. investment decision (Anwar, 2018), financing decisions (Leary, 2014), cash holding decisions (Chen, Chan, & Chang, 2019) and tax avoidance (Li et al, 2014). Furthermore, notions of signaling theory suggested that decision making of corporate managers depends upon future business movements of other colleague firms (Brigham & Houston, 2009).…”

Section: Empirical Findings and Hypothesis Developmentmentioning

confidence: 94%

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Do Peer Influence Corporate Firms? Evidence from Working Capital Management Practices

Farooq¹,

Ahmed²

2020

Preprint

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Working capital management requires a careful attention by the corporate managers because it plays an important role in corporate stability. Social belongingness of managers induced them to learn from their society, colleagues and from overall industrial movement. They also learn from their peers which have more strategical efficiency. In line with these arguments, the objective of current study is to explores the peer influence on corporate working capital management practices. To making analysis, ten-years data (2009-2018) of non-financial publicly listed firms at PSX were collected and the cash conversion cycle (CCC) uses as a proxy variable of working capital management (WCM). To estimate the regression, an econometric technique named the Generalized Method of Moments (GMM) was used. The empirical findings suggest the significant impact of peer WCM on corporate WCM. It also suggests the significant impact of other variables that determine the WCM. This study recommends social learning policy to corporate managers. They can learn from their peers to manage the working capital. Most previous studies discuss the peer influence on investment decisions, corporate cash holding and financing policy, etc., but no study explores such a relationship specifically in the Pakistani non-financial sector data set.

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Section: Variables Descriptionsupporting

confidence: 90%

Section: Empirical Findings and Hypothesis Developmentmentioning

confidence: 94%

Do Peer Influence Corporate Firms? Evidence from Working Capital Management Practices

Farooq¹,

Ahmed²

2020

Preprint

View full text Add to dashboard Cite

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“…The study found peer effects in a firm's decisions particularly in investment, firm size, debt financing and coverage with more pronounced effect in the acquisition and compensation-related decisions. Similarly, Chen and Chang (2013), finds that U.S. manufacturing firms' follow their peers in deciding their own cash holding levels. Moreover, this behavior is stronger in firms that are research and development intensive or/and financially constrained.…”

Section: Literature Review Peer Effects In Financementioning

confidence: 99%

Peer effects, Financial Decisions and Industry Concentration

Zaighum

Karim

2019

SJOM

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Purpose- This article reviews literature related to peer effects and different financial decisions. It further summarizes the theory and motives that drive peer effects. Also, the study highlights the influence of industry concentration on peer interaction in financial decision making. This content analysis of scantily available peer effect literature has been performed to highlight the significance of peer effects in financial decision making like investment, cash holding, leverage and many more. Most of the existing peer effects literature focuses on the U.S. However, peer effects also occur in other countries but empirical evidence is comparatively limited. But, managers may take into consideration their industry peers especially if their firms are operating in highly competitive environments. Design/Methodology- Content analysis approach is applied to review prevailing financial literature on peer interactions and financial decisions with a special focus on industry concentration in explaining the peer effects. Practical Implications- As the prime focus of managerial decisions is to maximize the firm’s value. Hence, information about peers would be helpful in making better decisions, especially in highly competitive environments. Also, this review of selected literature provides pathways for future research in investigating the motives of peer effects.

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“…However, cost is associated with maintaining high amounts of cash, particularly in terms of the agency cost. Cash is easily destroyed due to agency problems, compared to other assets, because cash is easily expropriated by entrenched managers, which ultimately destroys the value of the firm [2,3].…”

Section: Introductionmentioning

confidence: 99%

Corporate Governance and Cash Holding: New Insights from Concentrated and Competitive Industries

Shah

Nouman

et al. 2021

Sustainability

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The present study empirically investigates the effect of corporate governance on the value of cash holding, usage of excess cash, and firm performance in concentrated and competitive industries in the context of less developed countries. The empirical analysis was conducted in the panel data setting using Pakistan as a case study. Our findings suggest a strong relationship between the value of cash holding and corporate governance, and the complementary effect of product market competition for corporate governance. This suggests that the external market discipline is also needed, in addition to good governance, to resolve agency problems in less developed countries. This is because less developed countries are usually characterized by lower competition, poor mechanisms for shareholder protection, and weak legal systems. Consequently, agency problems are greater in less developed countries compared to developed countries. Our findings also indicate that firms with good governance dissipate less excess cash on internal investment, dividends and diversification in competitive industries. Moreover, the significant positive relationship between the lagged excess cash and corporate governance dummy interaction with the dividend supports the dividend outcome model, particularly in the concentrated industries. Finally, our results suggest that the efficient utilization of excess cash, induced by good governance, leads to better corporate performance in less developed countries.

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Peer effects on corporate cash holdings

Cited by 78 publications

References 32 publications

Do Peer Influence Corporate Firms? Evidence from Working Capital Management Practices

Do Peer Influence Corporate Firms? Evidence from Working Capital Management Practices

Peer effects, Financial Decisions and Industry Concentration

Corporate Governance and Cash Holding: New Insights from Concentrated and Competitive Industries

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