Do business groups affect corporate cash holdings?Evidence from a transition economy

来源 :China Journal of Accounting Research | 被引量 : 0次 | 上传用户:xuanwuba
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We examine whether business groups’ influence on cash holdings depends on ownership. Group affiliation can increase firms’ agency costs or benefit firms by providing an internal capital market, especially in transition economies characterized by weak investor protection and difficult external capital acquisition. A hand-collected dataset of Chinese firms reveals that group affiliation decreases cash holdings, alleviating the free-cash-flow problem of agency costs.State ownership and control of listed firms moderate this benefit, which is more pronounced when the financial market is less liquid. Group affiliation facilitates related-party transactions, increases debt capacity and decreases investmentcash-flow sensitivity and overinvestment. In transitional economies, privately controlled firms are more likely to benefit from group affiliation than statecontrolled firms propped up by the government. We examine whether business groups ’influence on cash holdings depends on ownership. Group affiliation can increase firms’ agency costs or benefit firms by providing an internal capital market, especially in transition/> characterized by weak investor protection and difficult external capital acquisition. A hand- collected dataset of Chinese stocks reveals that group affiliations diminish cash holdings, alleviating the free-cash-flow problem of agency costs. State ownership and control of derivatives firms moderate this benefit, which is more pronounced when the financial market is less liquid. facilitates related-party transactions, increases debt capacity and decreases investmentcash-flow sensitivity and overinvestment. In transitional economies, privately controlled firms are more likely to benefit from group affiliation than state-controlled firms propped up by the government.
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