Corporate governance and cash holdings: A quantile regression approach

This study investigates the role of ownership and control structure of firms when determining their cash holdings and focuses mainly on the association between excess control rights and cash holdings. Using a sample of Taiwanese publicly listed companies from 1997 to 2009, this study shows that the relationship between excess control rights and cash holdings depends on each firm's characteristics in terms of quantile regression. Fewer excess control rights affect cash holdings positively in low cash holding firms but negatively in high cash holding firms. Additional analysis reveals that when a family member serves as the CEO in low cash holding firms, the amount of cash holding is greater than if the CEO is an outsider. However, family members holding the position of CEO affect cash holdings negatively in high cash holding firms. These results suggest that firms with less cash holdings stockpile more cash reserves to take advantage of investment opportunities. The objective of corporate governance for firms with more cash reserves is to ensure that firms decrease levels of cash to avoid agency problems.