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Article: The effect of government quality on corporate cash holdings

TitleThe effect of government quality on corporate cash holdings
Authors
KeywordsCash holding
China
Government quality
Property rights
Twin agency problems
Issue Date2014
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfin
Citation
Journal of Corporate Finance, 2014, v. 27, p. 384-400 How to Cite?
AbstractWe use China as a laboratory to test the effect of government quality on cash holdings. We build on, and extend, the existing literature on government expropriation and its interaction with firm-level agency problems by proposing a financial constraint mitigation argument. We find that firms hold less cash when local government quality is high, which is not consistent with the state expropriation argument, but supports the financial constraint mitigation argument. A good government lowers the investment sensitivity to cash flows and cash sensitivity to cash flows, decreases cash holdings more significantly in private firms, and improves access to bank and trade credit financing. We also test and find support for Stulz's (2005) model on the interaction between government and firm agency problems. © 2014 Elsevier B.V.
Persistent Identifierhttp://hdl.handle.net/10722/201016
ISSN
2015 Impact Factor: 1.286
2015 SCImago Journal Rankings: 1.446
SSRN
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorChen, Den_US
dc.contributor.authorLi, Sen_US
dc.contributor.authorXiao, Jen_US
dc.contributor.authorZou, Hen_US
dc.date.accessioned2014-08-21T07:09:56Z-
dc.date.available2014-08-21T07:09:56Z-
dc.date.issued2014en_US
dc.identifier.citationJournal of Corporate Finance, 2014, v. 27, p. 384-400en_US
dc.identifier.issn0929-1199-
dc.identifier.urihttp://hdl.handle.net/10722/201016-
dc.description.abstractWe use China as a laboratory to test the effect of government quality on cash holdings. We build on, and extend, the existing literature on government expropriation and its interaction with firm-level agency problems by proposing a financial constraint mitigation argument. We find that firms hold less cash when local government quality is high, which is not consistent with the state expropriation argument, but supports the financial constraint mitigation argument. A good government lowers the investment sensitivity to cash flows and cash sensitivity to cash flows, decreases cash holdings more significantly in private firms, and improves access to bank and trade credit financing. We also test and find support for Stulz's (2005) model on the interaction between government and firm agency problems. © 2014 Elsevier B.V.-
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jcorpfinen_US
dc.relation.ispartofJournal of Corporate Financeen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsNOTICE: this is the author’s version of a work that was accepted for publication in Journal of Corporate Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in PUBLICATION, [VOL 27, (2014)] DOI 10.1016/j.jcorpfin.2014.05.008-
dc.subjectCash holding-
dc.subjectChina-
dc.subjectGovernment quality-
dc.subjectProperty rights-
dc.subjectTwin agency problems-
dc.titleThe effect of government quality on corporate cash holdingsen_US
dc.typeArticleen_US
dc.identifier.emailZou, H: hongzou@hku.hken_US
dc.identifier.authorityZou, H=rp01800en_US
dc.description.naturepostprint-
dc.identifier.doi10.1016/j.jcorpfin.2014.05.008en_US
dc.identifier.scopuseid_2-s2.0-84904102835-
dc.identifier.hkuros232944en_US
dc.identifier.volume27en_US
dc.identifier.spage384en_US
dc.identifier.epage400en_US
dc.identifier.isiWOS:000341547300021-
dc.publisher.placeNetherlands-
dc.identifier.ssrn1969711-
dc.customcontrol.immutablesml 141015-

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