Corporate governance and cash holdings: Listed new economy versus old economy firms

  • Chen Y
  • 48


    Mendeley users who have this article in their library.
  • 17


    Citations of this article.


Manuscript Type: Empirical Research Question/Issue: This study examines the impact of corporate governance on the cash-holding policies of firms with different investment opportunities. It is difficult to determine the optimal level of cash holdings for "listed new economy" firms (firms in the computer, software, Internet, telecommunications, or networking industries), which require large amounts of capital for investment opportunities with high return potential. Unlike in "old economy" firms, for which investment opportunities are relatively limited, corporate governance in listed new economy firms may create shareholder protections that make investors willing to accept higher levels of corporate cash holdings. Research Findings/Results: By examining American Standard and Poor 1,500 companies, the evidence shows that CEO ownership and board independence affect the cash holdings in listed new economy and old economy firms differently. Specifically, higher managerial cash holdings tend to reduce cash holdings in old economy firms and higher board independence tend to increase cash holdings in listed new economy firms. Theoretical Implications: This study provides empirical support for the association between agency theory and cash theories. Given different firm characteristics, the impact of corporate governance on cash holdings verifies the implication of agency theory in explaining corporate cash policy. Practical Implications: While firms in new economy industries may be eager for more flexible governance codes in order to maintain the freedom of decision making, the evidence from this study suggests that establishing effective governance mechanisms may, in turn, effectively enlarge the degree of freedom for these firms to make timely business decisions.

Author-supplied keywords

  • Agency theory
  • Board of directors issues
  • Corporate control market
  • Ownership issues
  • Takeover defenses

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document


  • Yenn Ru Chen

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free