Foreign Institutional Ownership and Cash Holdings in Thai Capital Market
Article Sidebar
Published:
Mar 3, 2020
Keywords:
Foreign Institutional Investors Cash Holdings Precautionary Motive Agency Problems
Main Article Content
Abstract
This research article examines the relationship between foreign institutional ownership and the cash holdings of nonfinancial firms in Thailand over the period from 2013 to 2016. The result indicates that firms with higher foreign institutional ownership are associated with more cash holdings. This finding suggests that foreign institutional investors in the Thai firms may encourage managers to hold more cash reserves to hedge against unexpected cash flow risks and to increase value-enhancing investment opportunities with the precautionary savings motive. Moreover, this finding warns that firms with greater cash holdings will create agency problems between managers and shareholders, if managers dissipate such holdings for their private benefit and invest in value-decreasing investments. Managers and policy makers should improve corporate governance practices and provide institutions with effective capabilities for management monitoring roles to mitigate those conflicts of interest.
Article Details
Section
Articles
Copyright to published manuscripts becomes the property of the Graduate School of Development Economics, National Institute of Development Administration. Reproduction of all or part of a Development Economic Review (DER) article by anyone, excluding author(s), is prohibited, unless receiving our permission.
Disclaimer: Opinions expressed in articles published in this journal are those of the author (s) and do nto necessarily represent opinions of the Graduate School of Development Economics, National Institute of Development Administration. Trade and proprietary names are only for identification and not constitute our endorsement.
References
Al‐Najjar, B., and Belghitar, Y. (2011). Corporate cash holdings and dividend payments: Evidence from simultaneous analysis. Managerial and Decision Economics, 32(4), 231-241.
Al‐Najjar, B. (2015). The Effect of governance mechanisms on small and medium‐sized enterprise cash holdings: Evidence from the United Kingdom. Journal of Small Business Management, 53(2), 303-320.
Al-Najjar, B., and Clark, E. (2017). Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices. Research in International Business and Finance, 39(A), 1-12.
Ameer, R. (2010). The role of institutional investors in the inventory and cash management practices of firms in Asia. Journal of Multinational Financial Management, 20(2-3), 126-143.
Anderson, R. W., & Hamadi, M. (2016). Cash holding and control-oriented finance. Journal of Corporate Finance, 41(C), 410-425.
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to? The journal of finance, 64(5), 1985-2021.
Belghitar, Y., and Khan, J. (2013). Governance mechanisms, investment opportunity set and SMEs cash holdings. Small Business Economics, 40(1), 59-72.
Chen, Y. R., & Chuang, W. T. (2009). Alignment or entrenchment? Corporate governance and cash holdings in growing firms. Journal of Business Research, 62(11), 1200-1206.
Claessens, S., Djankov, S., and Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1-2), 81-112.
Connelly, J. T., Limpaphayom, P., and Nagarajan, N. J. (2012). Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand. Journal of Banking & Finance, 36(6), 1722-1743.
Dang, V. A., Kim, M., & Shin, Y. (2015). In search of robust methods for dynamic panel data models in empirical corporate finance. Journal of Banking & Finance, 53(C), 84-98.
Dittmar, A., Mahrt-Smith, J., and Servaes, H. (2003). International corporate governance and corporate cash holdings. Journal of Financial and Quantitative Analysis, 38(1), 111-133.
Ferreira, M. A., and Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295-319.
Gillan, S. L., & Starks, L. T. (2002). Institutional investors, corporate ownership and corporate governance. Ownership and Governance of Enterprises, 36-68. Retrieved from https://link.springer.com/chapter/10.1057/9781403943903_2
Guizani, M. (2017). The financial determinants of corporate cash holdings in an oil rich country: Evidence from Kingdom of Saudi Arabia. Borsa Istanbul Review, 17(3), 133-143.
Han, S., & Qiu, J. (2007). Corporate precautionary cash holdings. Journal of Corporate Finance, 13(1), 43-57.
Harford, J., Mansi, S. A., and Maxwell, W. F. (2008). Corporate governance and firm cash holdings in the US. Journal of Financial Economics, 87(3), 535-555.
Horioka, C. Y., & Terada‐Hagiwara, A. (2014). Corporate cash holding in Asia. Asian Economic Journal, 28(4), 323-345.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Jiang, Z., & Lie, E. (2016). Cash holding adjustments and managerial entrenchment. Journal of Corporate Finance, 36, 190-205.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: McMillan.
Kim, C. S., Mauer, D. C., & Sherman, A. E. (1998). The determinants of corporate liquidity: Theory and evidence. Journal of financial and quantitative analysis, 33(3), 335-359.
Kuan, T. H., Li, C. S., and Chu, S. H. (2011). Cash holdings and corporate governance in family- controlled firms. Journal of Business Research, 64(7), 757-764.
Kuan, T. H., Li, C. S., and Liu, C. C. (2012). Corporate governance and cash holdings: A quantile regression approach. International Review of Economics & Finance, 24, 303-314.
Kusnadi, Y., Yang, Z., & Zhou, Y. (2015). Institutional development, state ownership, and corporate cash holdings: Evidence from China. Journal of Business Research, 68(2), 351-359.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1-2), 3-27.
Lian, Y., Sepehri, M., & Foley, M. (2011). Corporate cash holdings and financial crisis: an empirical study of Chinese companies. Eurasian Business Review, 1(2), 112-124.
Lins, K. V., Servaes, H., & Tufano, P. (2010). What drives corporate liquidity? An international survey of cash holdings and lines of credit. Journal of financial economics, 98(1), 160-176.
Lee, C., & Park, H. (2016). Financial constraints, board governance standards, and corporate cash holdings. Review of Financial Economics, 28, 21-34.
Lemmon, M. L., & Lins, K. V. (2003). Ownership structure, corporate governance, and firm value: Evidence from the East Asian financial crisis. The journal of finance, 58(4), 1445-1468.
Maheshwari, Y., & Rao, K. V. (2017). Determinants of corporate cash holdings. Global Business Review, 18(2), 416-427.
Miller, M. H., & Orr, D. (1966). A model of the demand for money by firms. The Quarterly journal of economics, 80(3), 413-435.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
Myers, S. C., and Rajan, R. G. (1998). The paradox of liquidity. The Quarterly Journal of Economics, 113(3), 733-771.
Opler, T., Pinkowitz, L., Stulz, R., and Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46.
Ozkan, A., and Ozkan, N. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking & Finance, 28(9), 2103-2134.
Pound, J. (1988). Proxy contests and the efficiency of shareholder oversight. Journal of financial economics, 20, 237-265.
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of political economy, 94(3, Part 1), 461-488.
Song, K. R., & Lee, Y. (2012). Long-term effects of a financial crisis: Evidence from cash holdings of East Asian firms. Journal of Financial and Quantitative Analysis, 47(3), 617-641.
Thanatawee, Y. (2014). Institutional ownership and firm value in Thailand. Asian Journal of Business and Accounting, 7(2), 1-22.
Tong, Z. (2014). Deviations from optimal corporate cash holdings and the valuation from a shareholder’s perspective. Applied Economics, 46(30), 3695-3707.
Uyar, A., & Kuzey, C. (2014). Determinants of corporate cash holdings: evidence from the emerging market of Turkey. Applied Economics, 46(9), 1035-1048.
Ward, C., Yin, C., & Zeng, Y. (2018). Institutional investor monitoring motivation and the marginal value of cash. Journal of Corporate Finance, 48, 49-75.
Wiwattanakantang, Y. (2001). Controlling shareholders and corporate value: Evidence from Thailand. Pacific-Basin Finance Journal, 9(4), 323-362.
Vo, X. V. (2018). Foreign ownership and corporate cash holdings in emerging markets. International Review of Finance, 18(2), 297-303.
Al‐Najjar, B. (2015). The Effect of governance mechanisms on small and medium‐sized enterprise cash holdings: Evidence from the United Kingdom. Journal of Small Business Management, 53(2), 303-320.
Al-Najjar, B., and Clark, E. (2017). Corporate governance and cash holdings in MENA: Evidence from internal and external governance practices. Research in International Business and Finance, 39(A), 1-12.
Ameer, R. (2010). The role of institutional investors in the inventory and cash management practices of firms in Asia. Journal of Multinational Financial Management, 20(2-3), 126-143.
Anderson, R. W., & Hamadi, M. (2016). Cash holding and control-oriented finance. Journal of Corporate Finance, 41(C), 410-425.
Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do US firms hold so much more cash than they used to? The journal of finance, 64(5), 1985-2021.
Belghitar, Y., and Khan, J. (2013). Governance mechanisms, investment opportunity set and SMEs cash holdings. Small Business Economics, 40(1), 59-72.
Chen, Y. R., & Chuang, W. T. (2009). Alignment or entrenchment? Corporate governance and cash holdings in growing firms. Journal of Business Research, 62(11), 1200-1206.
Claessens, S., Djankov, S., and Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1-2), 81-112.
Connelly, J. T., Limpaphayom, P., and Nagarajan, N. J. (2012). Form versus substance: The effect of ownership structure and corporate governance on firm value in Thailand. Journal of Banking & Finance, 36(6), 1722-1743.
Dang, V. A., Kim, M., & Shin, Y. (2015). In search of robust methods for dynamic panel data models in empirical corporate finance. Journal of Banking & Finance, 53(C), 84-98.
Dittmar, A., Mahrt-Smith, J., and Servaes, H. (2003). International corporate governance and corporate cash holdings. Journal of Financial and Quantitative Analysis, 38(1), 111-133.
Ferreira, M. A., and Vilela, A. S. (2004). Why do firms hold cash? Evidence from EMU countries. European Financial Management, 10(2), 295-319.
Gillan, S. L., & Starks, L. T. (2002). Institutional investors, corporate ownership and corporate governance. Ownership and Governance of Enterprises, 36-68. Retrieved from https://link.springer.com/chapter/10.1057/9781403943903_2
Guizani, M. (2017). The financial determinants of corporate cash holdings in an oil rich country: Evidence from Kingdom of Saudi Arabia. Borsa Istanbul Review, 17(3), 133-143.
Han, S., & Qiu, J. (2007). Corporate precautionary cash holdings. Journal of Corporate Finance, 13(1), 43-57.
Harford, J., Mansi, S. A., and Maxwell, W. F. (2008). Corporate governance and firm cash holdings in the US. Journal of Financial Economics, 87(3), 535-555.
Horioka, C. Y., & Terada‐Hagiwara, A. (2014). Corporate cash holding in Asia. Asian Economic Journal, 28(4), 323-345.
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
Jiang, Z., & Lie, E. (2016). Cash holding adjustments and managerial entrenchment. Journal of Corporate Finance, 36, 190-205.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: McMillan.
Kim, C. S., Mauer, D. C., & Sherman, A. E. (1998). The determinants of corporate liquidity: Theory and evidence. Journal of financial and quantitative analysis, 33(3), 335-359.
Kuan, T. H., Li, C. S., and Chu, S. H. (2011). Cash holdings and corporate governance in family- controlled firms. Journal of Business Research, 64(7), 757-764.
Kuan, T. H., Li, C. S., and Liu, C. C. (2012). Corporate governance and cash holdings: A quantile regression approach. International Review of Economics & Finance, 24, 303-314.
Kusnadi, Y., Yang, Z., & Zhou, Y. (2015). Institutional development, state ownership, and corporate cash holdings: Evidence from China. Journal of Business Research, 68(2), 351-359.
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R. (2000). Investor protection and corporate governance. Journal of Financial Economics, 58(1-2), 3-27.
Lian, Y., Sepehri, M., & Foley, M. (2011). Corporate cash holdings and financial crisis: an empirical study of Chinese companies. Eurasian Business Review, 1(2), 112-124.
Lins, K. V., Servaes, H., & Tufano, P. (2010). What drives corporate liquidity? An international survey of cash holdings and lines of credit. Journal of financial economics, 98(1), 160-176.
Lee, C., & Park, H. (2016). Financial constraints, board governance standards, and corporate cash holdings. Review of Financial Economics, 28, 21-34.
Lemmon, M. L., & Lins, K. V. (2003). Ownership structure, corporate governance, and firm value: Evidence from the East Asian financial crisis. The journal of finance, 58(4), 1445-1468.
Maheshwari, Y., & Rao, K. V. (2017). Determinants of corporate cash holdings. Global Business Review, 18(2), 416-427.
Miller, M. H., & Orr, D. (1966). A model of the demand for money by firms. The Quarterly journal of economics, 80(3), 413-435.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
Myers, S. C., and Rajan, R. G. (1998). The paradox of liquidity. The Quarterly Journal of Economics, 113(3), 733-771.
Opler, T., Pinkowitz, L., Stulz, R., and Williamson, R. (1999). The determinants and implications of corporate cash holdings. Journal of Financial Economics, 52(1), 3-46.
Ozkan, A., and Ozkan, N. (2004). Corporate cash holdings: An empirical investigation of UK companies. Journal of Banking & Finance, 28(9), 2103-2134.
Pound, J. (1988). Proxy contests and the efficiency of shareholder oversight. Journal of financial economics, 20, 237-265.
Shleifer, A., & Vishny, R. W. (1986). Large shareholders and corporate control. Journal of political economy, 94(3, Part 1), 461-488.
Song, K. R., & Lee, Y. (2012). Long-term effects of a financial crisis: Evidence from cash holdings of East Asian firms. Journal of Financial and Quantitative Analysis, 47(3), 617-641.
Thanatawee, Y. (2014). Institutional ownership and firm value in Thailand. Asian Journal of Business and Accounting, 7(2), 1-22.
Tong, Z. (2014). Deviations from optimal corporate cash holdings and the valuation from a shareholder’s perspective. Applied Economics, 46(30), 3695-3707.
Uyar, A., & Kuzey, C. (2014). Determinants of corporate cash holdings: evidence from the emerging market of Turkey. Applied Economics, 46(9), 1035-1048.
Ward, C., Yin, C., & Zeng, Y. (2018). Institutional investor monitoring motivation and the marginal value of cash. Journal of Corporate Finance, 48, 49-75.
Wiwattanakantang, Y. (2001). Controlling shareholders and corporate value: Evidence from Thailand. Pacific-Basin Finance Journal, 9(4), 323-362.
Vo, X. V. (2018). Foreign ownership and corporate cash holdings in emerging markets. International Review of Finance, 18(2), 297-303.