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Corporate Governance and Cash Holdings in Indian Firms

Governance and Regulations’ Contemporary Issues

ISBN: 978-1-78743-816-3, eISBN: 978-1-78743-815-6

Publication date: 9 July 2018


A persistent and increasing pattern in cash holdings was notable in the aggregate behaviour of Indian corporations around the period from 2007–2008 to 2012–2013. Extant literature suggests that agency conflicts and financing frictions are important determinants of cash holdings. In this chapter the author aims to shed light on the role of corporate governance (CG) in the determination of cash holdings and examined how ownership structure, board and audit-related attributes (used as proxies for the nature of CG) impact cash holdings in the context of an emerging economy, like India. The author employed four different measures of cash and liquidity and 24 structural indicators of CG. Using principal component analysis, the author offers an exploratory inquiry into the dimensions of CG. Thereafter, multiple regression was used to delve into the association between cash holdings (the dependent variable) and CG. Using a sample of 58 top-listed companies the results revealed that the quality of firm-level CG is important in deciding corporate cash holdings. The author reported that firms with stronger CG tend to reduce cash balances and have higher capital expenditures, while in firms with entrenched managers having high cash reserves invest more in current assets. Firms also hold cash for financial flexibility and to take advantage of strategic opportunities as they present themselves. Parallel to this point is the fact that larger balances help firms to avoid uncertainty and hedge themselves against the difficulty of accessing external funds.



Roy, A. (2018), "Corporate Governance and Cash Holdings in Indian Firms", Grima, S. and Marano, P. (Ed.) Governance and Regulations’ Contemporary Issues (Contemporary Studies in Economic and Financial Analysis, Vol. 99), Emerald Publishing Limited, Bingley, pp. 93-119.



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