Alignment or entrenchment? Corporate governance and cash holdings in growing firms

• Published in: Journal of business research Vol. 62; no. 11; pp. 1200 - 1206
• Main Authors: Chen, Yenn-Ru, Chuang, Wei-Ting
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01.11.2009; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Business Research
• Subjects: Board of directors; Boards of directors; Business ownership; Cash flow; Cash holdings; Cash holdings Ownership Board of directors Founder CEO Venture capital; Chief executive officers; Corporate governance; Founder CEO; High tech industries; Impact analysis; Ownership; Ownership and control; Studies; Venture capital; Venture capital companies; Ownership; Cash holdings; Founder CEO; Board of directors; Venture capital
• ISSN: 0148-2963; 1873-7978
• DOI: 10.1016/j.jbusres.2008.06.004

This study contends that the association between corporate cash holdings and corporate governance is subject to the investment environments that firms face. For example, firms with an abundance of investment opportunities have a strong incentive to hold cash in order to maintain their competitive positions. Shareholders accept high levels of cash holdings in such growing firms if corporate governance can protect their interests. This study examines the effects of corporate governance on cash holdings for a sample of high-tech firms. The results show that CEO ownership, the directorship of venture capitalists (VCs), and independent directors play critical roles in corporate cash policy. In addition, the boards are more effective when the firms' CEOs are also their founders or when VCs hold a large stake of company shares. The effects of corporate governance are more significant in younger firms while the effects of firm-specific economic variables are more significant in older firms in the sample.