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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.

This study conducts a logistic regression analysis of the ability of excess cash and short-term bank loans to substitute for each other and a multiple regression analysis of the factors influencing excess cash and short-term bank loans holdings. In addition, a questionnaire is used to survey the views of Taiwan’s corporate financial leaders on the factors influencing these two liquidity resources. The empirical results support a certain level of substitution between the two types of holdings. The regression analysis shows that for companies that would accumulate more excess cash when interest rates are low, have strong corporate performance, have low debt ratios, and whose chairman of the board and chief executive officer (CEO) are not the same person. Companies tend to have more short-term bank loans when corporate performance is poor, debt ratios are high, and the chairman of the board and CEO are the same person, as well as when the degree of the deviation of control is small. We find that factors on financial structure, operating performance, cost of capital and corporate governance have significant influence on the holdings of these two liquidity facilities in regression, whereas the influence factors exclude corporate governance in questionnaire.

The author examines key factors which affect intangible asset holdings of foreign subsidiaries of multinational enterprises (MNEs). The author developes the hypotheses by drawing upon the pecking order theory in the finance literature and the institution theory. The author theorizes that MNE foreign subsidiaries combine and utilize their cash holdings (finance-based firm-specific advantages [FSAs]) with host country economic freedom (host country-specific advantages [CSAs]) in their holdings of intangible assets which are internally created and/or purchased. The author empirically tests the hypotheses using a new original dataset of European subsidiaries of US MNEs. The author finds that cash holdings and host country economic freedom share a significant and positive relationship with intangible asset holdings. The author discusses the implications of the findings for theory and practice.

The chapter investigates three channels through which private benefits are hypothesized to be extracted in dual class companies: excess executive compensation, excess capital expenditures and excess cash holdings.

With a propensity score matched sample of S&P 1500 dual class and single class companies with concentrated control, the chapter analyzes the relationship between the valuation discount of dual class companies and measures of excess executive compensation, excess capital expenditure and excess cash holdings.

Executives in dual class firms earn greater compensation relative to their counterparts in single class firms. This excess compensation is more pronounced when the executive is a family member. The value of dual class shares is discounted most when cash holdings and executive compensation of dual class are excessive. Excess compensation is highest for executives who are family members of dual class companies. The dual class discount is not related to excess capital expenditures.

The research shows that the discount in the value of dual class shares in relation to the value of closely controlled single class company shares is directly related to the channels through which controlling shareholder-managers can extract private benefits.

We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a source of agency problems that have implications for firms’ cash holdings and their investment decisions. We find that firms with low discretionary idiosyncratic volatility, which likely captures discretionary effort and risk-taking by managers, have smaller cash reserves. Moreover, while high discretionary idiosyncratic volatility firms spend cash internally (internal capital building), low discretionary idiosyncratic volatility firms use it for external acquisitions, consistent with the “quiet life” hypothesis. Our findings thus indicate a need for reinforcement of existing regulations and corporate laws to control for agency costs, which could in turn reduce firm risk and the probability of financial meltdown at the aggregate level.

The information of pledging stocks for liquidity by controlling shareholders of publicly traded firms in Taiwan has been required to disclose since 1998. A common perception by market practitioners in Taiwan is that stock pledging by controlling shareholders is an indication of expropriation of firms. This study first examines the determinants of the tendency that controlling shareholders of firms in Taiwan pledge their stocks to financial institutions for liquidity and then evaluates how stock pledging by controlling shareholders affects their firms' accounting and financial performances. Determinants of firm attributes, market conditions, and corporate governance are identified. The tendency of stock pledging by controlling shareholders has a negative effect on accounting and financial performances. The negative effect on firm performance is reduced when the firm has a higher level of working capital. These findings indicate that stock pledging by controlling shareholders is an indication of weak corporate governance when the firm has lower liquidity. These findings may provide insights to the equity markets of the other countries in which public firms have more concentrated ownerships.

Prior studies document increased share repurchase activity after the temporary tax holiday under the American Jobs Creation Act (AJCA) of 2004. Our study examines the moderating effect of financial statement readability on share repurchases in response to a temporary reduction in repatriation tax. Building on prior literature, we argue that firms with excess cash overseas, despite the lack of investment opportunities, produce less readable financial statements to hide bad news. We find that firms with less readable financial statements initiated higher levels of share repurchases after the AJCA. Our results contribute to the existing literature showing (1) firms hold excess cash overseas mainly for tax reasons rather than for nontax reasons such as precautionary motives or empire-building concerns and (2) firms return excess funds to investors rather than squander the funds once the tax cost of repatriation is reduced. Firms that suffer from the overinvestment problem using hard-to-read financial statements to hide the bad news of a lack of investment opportunities are more likely to benefit from the tax cut. Our study provides timely evidence of potential firm response to the 2017 Tax Cut and Jobs Act, which permanently removes the repatriation tax.

Agency theory suggests that firms with very high cash balances (“cash hoarders”) are likely to misinvest their funds. However, if investors do not fully recognize the implications of a high cash balance, then future returns may be predictable for cash-hoarding firms. We find that cash hoarders significantly underperform over the two years following their identification as hoarding. In subsequent analysis, we find that returns are significantly negative in the year that a prior cash-hoarding firm reports a significant decrease in cash. Our results suggest that investors do not fully appreciate the implications of a high cash balance for future returns, but do recognize problems when that cash is subsequently spent.

Crowdfunding is an emergent practice that is increasing exponentially as a means of financing to complement company capital. This chapter focuses on an innovative way of organizing peer-to-peer lending, known as crowdlending. The characteristics of crowdlending are social reward or interest and using the Internet as a medium for communication, prospection and raising funds. To fill the gap in the literature in this regard, this chapter addresses the following questions: Can crowdfunding be considered as a feasible conventional financial tool? What makes crowdlending work? Is it possible to apply the mutual cash holding (MCH) model to crowdlending as well as to previous examples such as the Mondragon Corporation and Trocobuy?

We use three cases (Mondragon Corporation, Trocobuy and Arboribus) to highlight financial tools that use the concept of stakeholder theory that is based on the collaborative management of cash surpluses. Using the Delphi technique combined with in-depth interviews we demonstrate the contribution of the MCH model to crowdlending. We show that the model could be applied to different organizations, thereby indicating its robustness and implying that it could be used in many other cases.

The present study suggests that crowdlending describes a new financing tool as a principal form of lending; it enables companies to implement a financial tool that allows for social development and stakeholder participation and that can ensure companies’ financial sustainability.

This model is based on six elements: expectations of mutual benefits, trust, management, guarantees, mutual profit and benefit. It suggests mutual benefit and positive social values for all stakeholders. However, cash surpluses will be efficiently used only when crowdlending is relevant to investors’ economic objective, because crowdlending as a social innovation does not in itself guarantee economic benefit.

The chapter provides evidence of crowdlending in practice. The research compares key cases in which the MCH model is applied. It also provides important insights into crowdlending as a social innovation.

We investigate the impact of the creation of a new incentive structure for CEOs resulting from firms introducing equity-based compensation (EBC) as a means of paying top executives on policy decisions. Contrasting a firm’s stock and operating performance in the period the CEO is compensated with EBC (EBC period) and the period when EBC is not a component of the same executive’s pay (No EBC period) leads us to conclude that awarding stock options and restricted shares to executives is not associated with improved firm performance. However, firms initiate EBC after superior performance suggesting that CEOs are awarded compensation in this form as a reward for past performance. Firms have higher unsystematic and total risk levels in the EBC period suggesting EBC influences CEOs’ risk-taking behavior and reduces agency costs arising from managerial risk aversion. While there is no change in R&D expenses and cash ratios there is a decrease in capital expenditures in the EBC period, which is consistent with reduced overinvestment agency costs. Finally, leverage and payout ratios are similar in both periods implying that firms’ financing policy is not influenced by changes in CEOs’ compensation structure.