Local long-term institutions, growth and cash holdings

Abstract

We provide empirical evidence that support both ‘outcome’ and ‘substitute’ models of agency theories related to cash holding. Local long-term institutional investors are associated with lower excess cash in firms with less growth and easier access to external financing, and with higher excess cash in firms with higher growth in our US sample.

Keywords:

• local institution
• cash
• growth
• monitor

JEL classification:

• G23
• G32

Notes

¹ LLTIO includes both local-dedicated investors and quasi-indexers since both are geared towards long-term benefits as pointed out in Bushee (2001).

² Similar results are found for market-to-book ratio, which proxies for growth in Opler et al. (1999).