Government Ownership and Corporate Cash Holdings: Empirical Evidence from the Amman Stock Exchange

Abstract

While the effect of ownership structure on the level of cash holdings has been widely examined, that of government ownership has been understudied. Using a generalized method of moments (GMM) estimation on the panel data of 107 Jordanian firms listed on the Amman Stock Exchange, this research adds to the limited literature on the relationship between government ownership and the level of corporate cash holdings. Consistent with agency theory, the findings reveal that firms with government ownership hold higher levels of cash and that such ownership creates agency problems. Other types of ownership, namely individual, foreign, and block holders, were found to be insignificant. The results provide an important implication for policy makers in Jordan: in order to reduce agency problems associated with government ownership, the government should revise its ownership policy and ensure it specifies clear purposes and expectations of business ownership and how it intends to exercise its rights as owner.