Corporate governance and cash holdings: Focusing on a corporate governance report in Korea

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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.

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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.)
    • Conceptualization
      Kevin Troy Chua, Hansol Lee
    • Data curation
      Kevin Troy Chua, Hansol Lee
    • Formal Analysis
      Kevin Troy Chua
    • Investigation
      Kevin Troy Chua, Hansol Lee
    • Methodology
      Kevin Troy Chua, Hansol Lee
    • Resources
      Kevin Troy Chua
    • Validation
      Kevin Troy Chua, Hansol Lee
    • Visualization
      Kevin Troy Chua
    • Writing – original draft
      Kevin Troy Chua, Hansol Lee
    • Writing – review & editing
      Kevin Troy Chua, Hansol Lee
    • Funding acquisition
      Hansol Lee
    • Project administration
      Hansol Lee
    • Supervision
      Hansol Lee