Persistent high liquidity, ownership structure and firm performance: Indian evidence

Abstract

The paper investigates the characteristics and performance of the persistent high liquidity firms in India in the backdrop of ownership concentration. Empirical evidence reveals that the persistent high liquidity firms consistently post superior performance, have better growth prospect and resort to less debt financing. Ownership structure has no influence on the performance of such firms. Consistent with trade off theory we find that persistent cash holding as a policy beyond a certain period may hinder performance. Industry-and- size matched comparison firms with non-persistent liquidity tend to overinvest having a negative impact on performance. Ownership concentration adversely impacts performance of such firms.