Foreign institutional ownership and corporate cash holdings: evidence from emerging economies

Research output: Contribution to journalArticle

Abstract

With the increased presence of foreign institutional investors in emerging stock markets, academic interest on the effects of foreign institutions on corporate managerial decisions has notably increased. This paper joins this debate by investigating the effects of foreign institutional ownership on cash holdings, a strategic corporate financing choice. Analysing a sample of firms from 23 emerging economies, the paper shows that, while foreign institutional ownership has a negative effect on cash holdings, it also increases the contribution of cash to firm valuation. These effects are potentially transmitted to cash through mitigation of agency conflicts and alleviation of financing constraints. In all, our findings suggest beneficial effects of foreign institutions on firms' financing structure, as foreign investors contribute to a more efficient and value-enhancing cash policy.
LanguageEnglish
Number of pages13
JournalInternational Review of Financial Analysis
Early online date22 Dec 2018
DOIs
Publication statusE-pub ahead of print - 22 Dec 2018

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Institutional ownership
Cash holdings
Emerging economies
Cash
Financing choices
Managerial decisions
Institutional investors
Mitigation
Financing
Agency conflict
Join
Financing constraints
Firm valuation
Emerging stock markets
Foreign investors

Keywords

  • foreign institutional ownership
  • cash holdings
  • agency costs
  • financial liberalisation
  • emerging economies

Cite this

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title = "Foreign institutional ownership and corporate cash holdings: evidence from emerging economies",
abstract = "With the increased presence of foreign institutional investors in emerging stock markets, academic interest on the effects of foreign institutions on corporate managerial decisions has notably increased. This paper joins this debate by investigating the effects of foreign institutional ownership on cash holdings, a strategic corporate financing choice. Analysing a sample of firms from 23 emerging economies, the paper shows that, while foreign institutional ownership has a negative effect on cash holdings, it also increases the contribution of cash to firm valuation. These effects are potentially transmitted to cash through mitigation of agency conflicts and alleviation of financing constraints. In all, our findings suggest beneficial effects of foreign institutions on firms' financing structure, as foreign investors contribute to a more efficient and value-enhancing cash policy.",
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author = "Tiago Loncan",
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AB - With the increased presence of foreign institutional investors in emerging stock markets, academic interest on the effects of foreign institutions on corporate managerial decisions has notably increased. This paper joins this debate by investigating the effects of foreign institutional ownership on cash holdings, a strategic corporate financing choice. Analysing a sample of firms from 23 emerging economies, the paper shows that, while foreign institutional ownership has a negative effect on cash holdings, it also increases the contribution of cash to firm valuation. These effects are potentially transmitted to cash through mitigation of agency conflicts and alleviation of financing constraints. In all, our findings suggest beneficial effects of foreign institutions on firms' financing structure, as foreign investors contribute to a more efficient and value-enhancing cash policy.

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