2008-05-20
Corporate Governance and the Value of Excess Cash Holdings of Large European Firms
Publication
Publication
ERIM report series research in management Erasmus Research Institute of Management
We examine the relation between the quality of corporate governance and the value of excess cash for large European firms (FTSEurofirst 300 Index). We use Deminor ratings for Shareholder rights, Takeover defences, Disclosure and Board as proxies for the quality of corporate governance. We find that the value of excess cash is positively related to the Takeover defences score only. It seems that governance mechanisms—except the market for corporate control—are not strong enough to prevent managers from wasting excess cash. For non-UK firms we find that the value of €1 of excess cash in a poorly governed firm is valued at only €0.89 while the value is €1.45 for a good governed firm. We show that poorly governed firms dissipate excess cash relatively quickly with a negative impact on their operating performance as a result.
Additional Metadata | |
---|---|
, , | |
, , | |
Erasmus Research Institute of Management | |
hdl.handle.net/1765/12465 | |
ERIM Report Series Research in Management | |
ERIM report series research in management Erasmus Research Institute of Management | |
Organisation | Erasmus Research Institute of Management |
Schauten, M., van Dijk, D., & van der Waal, J.-P. (2008). Corporate Governance and the Value of Excess Cash Holdings of Large European Firms (No. ERS-2008-027-F&A). ERIM report series research in management Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/12465 |