TY - JOUR
T1 - Foreign institutional ownership and corporate cash holdings: Evidence from emerging economies
AU - Loncan, Tiago
PY - 2020/10/1
Y1 - 2020/10/1
N2 - 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.
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.
U2 - 10.1016/j.irfa.2018.12.003
DO - 10.1016/j.irfa.2018.12.003
M3 - Article
SN - 1057-5219
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 101295
ER -