Corporate governance and cash holdings: Focusing on a corporate governance report in Korea
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DOIhttp://dx.doi.org/10.21511/imfi.21(1).2024.16
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Article InfoVolume 21 2024, Issue #1, pp. 198-212
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This study examines the effect of corporate governance on a company’s cash holdings, focusing on a firm’s compliance levels with core corporate governance indicators as outlined in the corporate governance report. Utilizing a random effect generalized least squares (GLS) regression model, this study evaluates 812 firm-year observations from Korean publicly traded companies covering the period 2018 to 2021. The results indicate that companies with robust governance structures generally maintain lower levels of cash holdings (coefficient = –0.0263, p-value = 0.044), corroborating the flexibility hypothesis. Moreover, higher compliance levels with governance matters concerning shareholder protection (coefficient = –0.0388, p-value = 0.090) and board of directors (coefficient = –0.0512, p-value = 0.052) are associated with reduced cash holdings. Further analysis, accounting for a firm’s organizational capital, underscores that the inverse relationship between corporate governance and cash holdings is more pronounced in organizations with lesser organizational capital (coefficient = –0.0548, p-value < 0.01). This study contributes empirical evidence showing that strict compliance with core corporate governance indicators, indicative of strong corporate governance, substantially affects a firm’s cash management. Additionally, this study offers valuable insights for regulatory authorities and investors and enhances the existing body of knowledge on the interplay between corporate governance and cash holdings.
- Keywords
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JEL Classification (Paper profile tab)G30, G32, G34, M41
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References28
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Tables9
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Figures0
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- Table 1. Sample selection
- Table 2. Descriptive statistics
- Table 3. Pearson correlation (N = 812)
- Table 4. Total corporate governance score panel regression results on cash holdings
- Table 5. Categorized corporate governance score panel regression results on cash holdings
- Table 6. Total corporate governance score panel regression results on cash holdings; upper and lower median organizational capital
- Table A1. Fifteen corporate governance key indices
- Table B1. Variable definitions
- Table C1. Examples of disclosure on compliance status of 15 core corporate governance indicators (Samsung Electronics Co., Ltd.)
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