Firm Structure and Corporate Cash Holdings

By Venkat Subramaniam, Tony T. Tang, Heng Yue, Xin Zhou. 2011

246 citations recorded by the source corpus.

We analyze whether the organizational structure of firms (i.e., whether a firm is diversified or focused) affects their cash holdings. Using Compustat firm level and segment-level data, we find that diversified firms hold significantly less cash than their focused counterparts. Our results are robust to industry adjustments at the segment level and to different factors previously found to be important determinants of cash holdings. Using time-series, cross-sectional, and additional robustness tests we are able to attribute the lower cash holdings among diversified firms to complementary growth opportunities across the different segments of these firms and the availability of active internal capital markets. We find that the other theories that rely on the potentially effective use of asset sales of non-core segments of diversified firms to generate cash, and the increased agency/influence costs in diversified firms do not offer an economically significant explanation for the lower cash holdings among diversified firms.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/89392b402e3b8ee1dcccdce0393926a59165ea8a

Citations in the corpus

• Corporate cash holdings: Causes and consequences (2015, unknown): “In a similar paper, Subramaniam et al. (2011) attribute the lower cash holdings AC C EP TE D M AN U SC R IP T of diversified firms to the complementarity in growth opportunities across the different segments while Tong (2011) associates diversification with lower values of cash.”