The Effects of Political Connections on the Level and Value of Cash Holdings: International Evidence

• Main Authors: Kusnadi, Yuanto, Wei, K.C. John
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Political connections; Cash holding; Legal protection; Corruption; Accounting
• Online Access: https://ink.library.smu.edu.sg/soa_research/1136
• Institution: Singapore Management University

In this paper, we examine the role of political connections on corporate liquidity policies and their consequences in an international setting. We find that managers of politically connected firms have a tendency to hoard more cash than their non-connected counterparts. Moreover, presence of political connections reduces the value of cash holdings. Further analysis reveals that our main findings are more pronounced for firms in emerging markets as well as for firms in countries with weak legal protection of investors and high levels of corruption. Overall, our empirical results corroborate previous findings on the agency cost explanation for corporate cash holdings.