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Conference Paper: National Culture and Corporate Cash Holdings: Evidence from China
Title | National Culture and Corporate Cash Holdings: Evidence from China |
---|---|
Authors | |
Keywords | Cash holdings Culture Agency conflicts China |
Issue Date | 2022 |
Publisher | American Finance Association. |
Citation | AFA PhD Student Poster Session at the 2022 Annual Meeting (Virtual), Januay 7-9, 2022 How to Cite? |
Abstract | This article identifies national culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as a setting. We find that firms located in regions with higher levels of Confucian culture hold higher levels
of cash and this high cash holdings status is also more persistent. Next, we employ an instrumental variable to establish causal identification of the culture effect and the IV estimates show a compelling economic magnitude. The culture effect is stronger
for more financially-constrained and riskier firms, suggesting precautionary motives as
the underlying mechanism. Besides, we find that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives.
Further, we find that higher Confucian culture firms make better investment decisions,
have higher acquisition announcement returns, pay out more dividends and achieve
higher profitability and lower profit volatility. These all are additional evidence arguing
against agency motives, but supporting an efficient outcome argument. Finally, we also show that the CEO/board chairman’s Confucian background and the firm’s headquarter cultural environment together exert an influence. |
Description | Session: 2022 AFA PhD Student Poster Session |
Persistent Identifier | http://hdl.handle.net/10722/317115 |
DC Field | Value | Language |
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dc.contributor.author | Deng, Y | - |
dc.date.accessioned | 2022-09-26T04:39:25Z | - |
dc.date.available | 2022-09-26T04:39:25Z | - |
dc.date.issued | 2022 | - |
dc.identifier.citation | AFA PhD Student Poster Session at the 2022 Annual Meeting (Virtual), Januay 7-9, 2022 | - |
dc.identifier.uri | http://hdl.handle.net/10722/317115 | - |
dc.description | Session: 2022 AFA PhD Student Poster Session | - |
dc.description.abstract | This article identifies national culture as an important factor affecting corporate cash holdings by using China and its national culture, Confucianism, as a setting. We find that firms located in regions with higher levels of Confucian culture hold higher levels of cash and this high cash holdings status is also more persistent. Next, we employ an instrumental variable to establish causal identification of the culture effect and the IV estimates show a compelling economic magnitude. The culture effect is stronger for more financially-constrained and riskier firms, suggesting precautionary motives as the underlying mechanism. Besides, we find that the culture effect remains intact after controlling for corporate governance heterogeneity, which rules out the agency motives. Further, we find that higher Confucian culture firms make better investment decisions, have higher acquisition announcement returns, pay out more dividends and achieve higher profitability and lower profit volatility. These all are additional evidence arguing against agency motives, but supporting an efficient outcome argument. Finally, we also show that the CEO/board chairman’s Confucian background and the firm’s headquarter cultural environment together exert an influence. | - |
dc.language | eng | - |
dc.publisher | American Finance Association. | - |
dc.subject | Cash holdings | - |
dc.subject | Culture | - |
dc.subject | Agency conflicts | - |
dc.subject | China | - |
dc.title | National Culture and Corporate Cash Holdings: Evidence from China | - |
dc.type | Conference_Paper | - |
dc.identifier.hkuros | 337057 | - |
dc.publisher.place | United States | - |