Firm structure and corporate cash holdings

We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robus...

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Main Authors: SUBRAMANIAM, Venkat, TANG, Tony, YUE, Heng, ZHOU, Xin
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/1584
https://ink.library.smu.edu.sg/context/soa_research/article/2611/viewcontent/1_s20_S0929119910000349_main__1_.pdf
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spelling sg-smu-ink.soa_research-26112017-08-10T08:39:37Z Firm structure and corporate cash holdings SUBRAMANIAM, Venkat TANG, Tony YUE, Heng ZHOU, Xin We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of active internal capital markets. We find that the other theories that rely on the potentially effective use of asset sales of non-core segments of diversified firms to generate cash, and the increased agency/influence costs in diversified firms do not offer an economically significant explanation for the lower cash holdings among diversified firms. 2011-06-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/1584 info:doi/10.1016/j.jcorpfin.2010.06.002 https://ink.library.smu.edu.sg/context/soa_research/article/2611/viewcontent/1_s20_S0929119910000349_main__1_.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Firm structure Cash holdings Internal capital markets Asset sales Agency costs Business and Corporate Communications Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Firm structure
Cash holdings
Internal capital markets
Asset sales
Agency costs
Business and Corporate Communications
Corporate Finance
spellingShingle Firm structure
Cash holdings
Internal capital markets
Asset sales
Agency costs
Business and Corporate Communications
Corporate Finance
SUBRAMANIAM, Venkat
TANG, Tony
YUE, Heng
ZHOU, Xin
Firm structure and corporate cash holdings
description We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of active internal capital markets. We find that the other theories that rely on the potentially effective use of asset sales of non-core segments of diversified firms to generate cash, and the increased agency/influence costs in diversified firms do not offer an economically significant explanation for the lower cash holdings among diversified firms.
format text
author SUBRAMANIAM, Venkat
TANG, Tony
YUE, Heng
ZHOU, Xin
author_facet SUBRAMANIAM, Venkat
TANG, Tony
YUE, Heng
ZHOU, Xin
author_sort SUBRAMANIAM, Venkat
title Firm structure and corporate cash holdings
title_short Firm structure and corporate cash holdings
title_full Firm structure and corporate cash holdings
title_fullStr Firm structure and corporate cash holdings
title_full_unstemmed Firm structure and corporate cash holdings
title_sort firm structure and corporate cash holdings
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/soa_research/1584
https://ink.library.smu.edu.sg/context/soa_research/article/2611/viewcontent/1_s20_S0929119910000349_main__1_.pdf
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