The Determinants of Corporate Cash Management Policy: Evidence from around the World

We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firm...

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Main Authors: KUSNADI, Yuanto, Wei, K. C. John
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/soa_research/1143
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Institution: Singapore Management University
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spelling sg-smu-ink.soa_research-21422013-10-24T09:48:03Z The Determinants of Corporate Cash Management Policy: Evidence from around the World KUSNADI, Yuanto Wei, K. C. John We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firms in countries with weak legal protection. This relationship is most pronounced for firms that are financially constrained and those with high hedging needs. More importantly, we do not find evidence that financial development plays an incremental impact on the cash flow sensitivity of cash, after controlling for the effect of legal protection. Therefore, we argue that the legal protection of investors (rather than financial development) represents the first-order effect in influencing international firms' cash management policies. The results are robust to alternative specifications. In general, our findings reinforce the importance of country-level legal protection of investors in mitigating the effects of firm-level financial constraints and hedging needs on corporate cash management policies. 2011-06-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/1143 info:doi/10.1016/j.jcorpfin.2010.12.002 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Legal protection Financial constraints Hedging needs Cash management policy Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Legal protection
Financial constraints
Hedging needs
Cash management policy
Accounting
Corporate Finance
spellingShingle Legal protection
Financial constraints
Hedging needs
Cash management policy
Accounting
Corporate Finance
KUSNADI, Yuanto
Wei, K. C. John
The Determinants of Corporate Cash Management Policy: Evidence from around the World
description We examine the determinants of corporate cash management policies across a broad sample of international firms. We document that firms in countries with strong legal protection of minority investors are more likely to decrease their cash holdings in response to an increase in cash flow than are firms in countries with weak legal protection. This relationship is most pronounced for firms that are financially constrained and those with high hedging needs. More importantly, we do not find evidence that financial development plays an incremental impact on the cash flow sensitivity of cash, after controlling for the effect of legal protection. Therefore, we argue that the legal protection of investors (rather than financial development) represents the first-order effect in influencing international firms' cash management policies. The results are robust to alternative specifications. In general, our findings reinforce the importance of country-level legal protection of investors in mitigating the effects of firm-level financial constraints and hedging needs on corporate cash management policies.
format text
author KUSNADI, Yuanto
Wei, K. C. John
author_facet KUSNADI, Yuanto
Wei, K. C. John
author_sort KUSNADI, Yuanto
title The Determinants of Corporate Cash Management Policy: Evidence from around the World
title_short The Determinants of Corporate Cash Management Policy: Evidence from around the World
title_full The Determinants of Corporate Cash Management Policy: Evidence from around the World
title_fullStr The Determinants of Corporate Cash Management Policy: Evidence from around the World
title_full_unstemmed The Determinants of Corporate Cash Management Policy: Evidence from around the World
title_sort determinants of corporate cash management policy: evidence from around the world
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/soa_research/1143
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