The effect of financial constraints, investment policy, product market competition and corporate governance on the value of cash holdings

Chan, Howard; Lu, Yufei; Zhang, Hong Feng

doi:10.1111/j.1467-629x.2011.00463.x

Cited by 33 publications

(32 citation statements)

References 29 publications

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“…(), Vogt (), Kaplan and Zingales (), Kaplan and Zingales (), Moyen (), Chen and Chen (), Sheu and Lee (), Chan et al . (), Chen et al . (), Poulsen et al .…”

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Investment–cash flow sensitivity measures investment thirst, but not financial constraint

Deng

Ding

Zhu

et al. 2015

Accounting & Finance

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Literature streams disagree about the capacity of investment-cash flow sensitivity (ICFS) to measure both investment thirst and financial constraint. We argue that ICFS measures the former but not the latter. Therefore, we use Fazzari et al. 's study (1988) to develop a model to test the relationship between ICFS and financial constraint, but extend that model using Kornai (1979) to include investment thirst. We demonstrate: because the ICFS-financial constraint relationship varies, ICFS cannot measure financial constraint. Conversely, using a natural experiment of China's Four Trillion Stimulus policy, we show ICFS significantly and positively correlates with investment thirst after controlling for financial constraint.

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“…(), Vogt (), Kaplan and Zingales (), Kaplan and Zingales (), Moyen (), Chen and Chen (), Sheu and Lee (), Chan et al . (), Chen et al . (), Poulsen et al .…”

unclassified

Investment–cash flow sensitivity measures investment thirst, but not financial constraint

Deng

Ding

Zhu

et al. 2015

Accounting & Finance

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“…This is because long-term excess cash holdings are more likely to be associated with agency costs rather than precautionary purposes. 22 Second, Chan et al (2013) partition firms into financially constrained and non-financially constrained firms, and find that equity holders place more value on financially constrained firms.…”

Section: Cash Holdings Financially Constraint and Liquiditymentioning

confidence: 98%

A contemporary view of corporate finance theory, empirical evidence and practice

Faff

Gray

Tan

2016

Australian Journal of Management

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…Board committee structure: to examine the role of board committee structure on the performance of mutual funds, this paper focuses on investment committees and audit committees. Similar to Chan et al (2013) and Lassoued and Elmir (2012), the proportion of directors on the audit committee and the proportion of directors on the investment committee are included in the regression analysis. Furthermore, Klein (1998) finds a positive correlation between the percentage of inside directors on investment committees and stock returns.…”

Section: Research Hypothesesmentioning

confidence: 99%

The Effect of Board Structure on Egyptian Mutual Fund Performance: A Structural Equation Model Analysis

Zhou¹,

Youssef²,

Sakr³

2020

IJEF

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Purpose – This paper empirically explores the causality between board structure and the fund performance in the mutual fund industry of an emerging market. Design – Using a panel of 82 Egyptian funds spanning 10 years before and after the global financial crisis, we develop a Structural Equation Model to deal with the endogeneity between measures of governance and performance in a systematic and identified way. Findings – Experimental results show a significant negative relationship between the equity ownership by the directors and the fund performance. Evidence shows little support for a significant effect of board structure on the performance after controlling for the endogeneity. It implies the misconduct of governance rules in Egypt, especially the weakness in board composition. Originality– Given the important role of mutual fund industry in Egypt, this is the first study of its kind explores the causality between board structure and the fund performance in the mutual fund.

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The effect of financial constraints, investment policy, product market competition and corporate governance on the value of cash holdings

Cited by 33 publications

References 29 publications

Investment–cash flow sensitivity measures investment thirst, but not financial constraint

Investment–cash flow sensitivity measures investment thirst, but not financial constraint

A contemporary view of corporate finance theory, empirical evidence and practice

The Effect of Board Structure on Egyptian Mutual Fund Performance: A Structural Equation Model Analysis

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