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State ownership and value of cash: new evidence from an emerging market

State ownership and value of cash: new evidence from an emerging market The purpose of this paper is to examine how state ownership influences value of cash in an institutional environment supporting soft-budget constraint.Design/methodology/approachThis study employs an interaction between state ownership and excess cash to examine how state ownership affects value of cash holdings based on Fama and French’s (1998) valuation model.FindingsWith a research data of 3,294 observations from 548 firms over the period 2009–2016, the authors find that state ownership is positively related to market value of cash. Moreover, this relationship is weaker in financially constrained firms.Originality/valueAlthough prior studies document a consistently negative effect of state ownership on market value of cash holdings, the authors argue that this effect may still be opposite. When managers of high state ownership firms rely on soft-budget constraint and save less cash, outside investors with this information disadvantage may focus more on precautionary motive and transaction motive than agency costs of cash holdings. As a result, value of cash holdings in high state ownership firms is higher. This paper contributes to the literature on corporate liquidity policy in emerging markets with new evidence on the role of state ownership in market value of cash holdings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

State ownership and value of cash: new evidence from an emerging market

International Journal of Emerging Markets , Volume 18 (9): 17 – Nov 14, 2023

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References (61)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1746-8809
DOI
10.1108/ijoem-02-2020-0196
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to examine how state ownership influences value of cash in an institutional environment supporting soft-budget constraint.Design/methodology/approachThis study employs an interaction between state ownership and excess cash to examine how state ownership affects value of cash holdings based on Fama and French’s (1998) valuation model.FindingsWith a research data of 3,294 observations from 548 firms over the period 2009–2016, the authors find that state ownership is positively related to market value of cash. Moreover, this relationship is weaker in financially constrained firms.Originality/valueAlthough prior studies document a consistently negative effect of state ownership on market value of cash holdings, the authors argue that this effect may still be opposite. When managers of high state ownership firms rely on soft-budget constraint and save less cash, outside investors with this information disadvantage may focus more on precautionary motive and transaction motive than agency costs of cash holdings. As a result, value of cash holdings in high state ownership firms is higher. This paper contributes to the literature on corporate liquidity policy in emerging markets with new evidence on the role of state ownership in market value of cash holdings.

Journal

International Journal of Emerging MarketsEmerald Publishing

Published: Nov 14, 2023

Keywords: Vietnam; Cash holdings; State ownership; Emerging market; Value of cash

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