The analysis of key corporate decisions is mostly restricted to publicly listed firms even though privately held firms constitute a substantial part of any economy. In this dissertation, my goal is to enhance our understanding of some of the important decisions of private firms, namely: cash holdings, investment and performance using unique and large cross-country samples. In the first chapter, I examine cash holdings of private, unlisted firms versus publicly traded firms in 33 European countries during 2002-2011. I find that the average cash-to-assets ratios are lower in the Eurozone than in non-Eurozone countries by 5.4% due to lower transaction demand under a single currency regime. Public firms have higher cash ratios than private firms. However, the difference in cash ratios between public and private firms is higher in the Eurozone than in non-Eurozone countries, reflecting that: (a) precautionary demand is higher in the Eurozone due to risks and pitfalls of policy coordination, and (b) economic adjustments and transfers in the Eurozone more directly affect publicly traded firms than private ones. Moreover, I show that, during the financial crisis, corporate cash ratios increased in the Eurozone, indicating that the increase in precautionary cash demand was greater than a decrease in transaction demand due to the adoption of the Euro. In the second chapter, I compare the operating performance and efficiency of publicly and privately held firms in the UK over the period 2003-2012. I find that privately held firms typically perform better than publicly traded firms. This finding is robust in various model settings, using industry and size as well as propensity scored matched samples, considering alternative definitions of operating performance, ownership structure and taking into account the endogeneity of firm's exchange listing choice. I also show that average operating profitability of public firms is even lower than that of private firms when both types of firms are financially constrained. Finally, I show that informational value of R&D is higher for private firms than it is for public firms. In the third chapter, I examine the relationship between time horizons and corporate investment, both on the firm and country levels, for private, unlisted firms and publicly traded firms using a unique dataset from 73 countries around the world during the time period of 2003-2012. I show that a longer time horizon (i.e. higher propensity to save and invest) on a cultural and country level also manifests itself as higher investment at the firm level. This is robust to using alternative proxies for the country-level time horizon. Investment behavior of private firms, not public firms, follows a country-level horizon pattern, which is reflective of close monitoring by fewer owners and the absence of stock market pressures in making investment decisions. When I consider time-horizon at the firm-level, we find that firms with a longer time horizon invest more, and this effect is more pronounced for public firms than for private firms, given the former's greater, easier, and cheaper access to capital in the public capital market. I also show that public firms invest more and are more responsive to investment opportunities than private firms. / Business Administration/Finance

For more than a decade, to reduce the agency problem, various ways have been examined on how to align the interest of manager with shareholders. Evidence and empirical findings are conflicting on the agency problem. Recently, deferred compensation as one incentive compensation draws the attention as a means to incentivize CEOs to make them work for the firm. However, it is still not evident if deferred compensation has effect on aligning CEOs with the firm’s goal possibly due to the issue on data. Therefore, the first essay investigates if deferred compensation has the effect on the agency problem and on the firm performance improvement after dealing with the data issue. This paper mainly aims to investigate if there is the non-linear relationship between the investment choice problem and the deferred compensation as Jensen and Meckling (1976) claim. This paper concludes that deferred compensation from NQDC table has positive and significant effect on the firm performance and the investment choice problem. More importantly, following McConnell and Servaes (1990), this paper finds the curvilinear relationship between Tobin’s Q and the deferred compensation and can confirm Jensen and Meckling (1976) theoretical application. The second essay aims to clarify the understanding on the relationship between the firm’s cash holdings and its causes by introducing the more detailed relationship between cash holdings and macroeconomic uncertainty. While previous literature tries to explain the level of cash holdings mainly by the firm-level variables, this study considers the full impact of the macroeconomic uncertainty on the level of cash holdings by introducing the firm’s heterogeneous exposure to macroeconomic uncertainty to see if the heterogeneity can tell the difference in the change in the level of cash holdings. This paper finds that macroeconomic uncertainties measured by difference macroeconomic condition variables are significant and contribute to the change in cash holdings. Additionally, this paper shows that the firms’ different level of exposure to macroeconomic uncertainty can cause the different degree of cash holdings and that firms with the higher level of exposure have the higher level of cash holdings.

Este trabalho de pesquisa objetivou investigar os determinantes do caixa das companhias brasileiras a partir de uma inédita amostra pareada de empresas de capital aberto e fechado. Mais do que explorar as principais vertentes teóricas que tentam explicar os fatores que influenciam a gestão das reservas de caixa, analisou-se conjuntamente os impactos das fricções financeiras e dos custos de agência sobre o nível de caixa, particularmente. Nesse contexto, buscou-se explorar a política de caixa em uma economia emergente como o Brasil, cujo ambiente legal e sistema financeiro ainda não estão plenamente consolidados. Além disso, estudou-se a influência da concentração da propriedade acionária sobre o caixa, assim como a velocidade com que as firmas ajustam seu nível de caixa em direção ao nível alvo em diversas situações. Os principais resultados encontrados apontaram que no período analisado as companhias de capital aberto apresentaram um nível de caixa significativamente superior ao das companhias de capital fechado, isto é, evidenciaram que os efeitos do problema de agência sobre a liquidez corporativa são mais acentuados que os efeitos das fricções financeiras. / This research aimed to investigate the determinants of the cash holdings of Brazilian companies from an unprecedented sample of public and private firms. More than just exploring the main theories that attempt to explain the factors that influence the cash management, the impacts of financial frictions and agency costs on the cash level were analyzed together. In this context, I sought to explore the cash policy in an emerging economy such as Brazil, whose legal environment and financial system are not fully consolidated. In addition, I have also studied the influence of the concentration of equity ownership on the cash holdings, as well as the speed of adjustment with which the firms manage their cash reserves towards a target level in several situations. The main results showed that public companies had a significantly higher cash level than private companies in the analyzed period. In other words, they presented that the effects of the agency problems on corporate liquidity are more pronounced than the effects of the financial frictions.

<p>This study examines the impact of working capital management on cash holdings of small and medium-sized manufacturing enterprises in Sweden. The aim of this work is to theoretically derive significant factors related to working capital management which have an influence on the cash level of SMEs and test these in a large sample of Swedish manufacturing SMEs. The theoretical framework for this study consists of a treatise of motives for holding cash, working capital management and cash level. From these theoretical findings, two hypotheses are deduced:</p><p>• H1: Cash holdings are negatively related to the presence of cash substitutes</p><p>• H2: Cash holdings are positively related to working capital management efficiency</p><p>The quantitative investigation consists of the statistical analysis – namely comparison of means and correlation analysis – of key figures which are calculated from the financial statements of a large sample of firms. The dataset contains 13,287 Swedish manufacturing SMEs of the legal form ‘Aktiebolag’. Both hypotheses are confirmed by the results. Empirical evidence is presented which substantiates the supposition that the presence of cash substitutes – namely inventory and accounts receivable – entails lower cash holdings. Furthermore, it is confirmed that working capital management efficiency – measured by the cash conversion cycle – is positively related to cash level. The discussion of the empirical findings pays regard to the different subordinate components of both cash substitutes and working capital management efficiency. Implications of the detected findings are highlighted with respect to their potential utility for the achievement and maintenance of a firm’s target cash level.</p>

This study examines the impact of working capital management on cash holdings of small and medium-sized manufacturing enterprises in Sweden. The aim of this work is to theoretically derive significant factors related to working capital management which have an influence on the cash level of SMEs and test these in a large sample of Swedish manufacturing SMEs. The theoretical framework for this study consists of a treatise of motives for holding cash, working capital management and cash level. From these theoretical findings, two hypotheses are deduced: • H1: Cash holdings are negatively related to the presence of cash substitutes • H2: Cash holdings are positively related to working capital management efficiency The quantitative investigation consists of the statistical analysis – namely comparison of means and correlation analysis – of key figures which are calculated from the financial statements of a large sample of firms. The dataset contains 13,287 Swedish manufacturing SMEs of the legal form ‘Aktiebolag’. Both hypotheses are confirmed by the results. Empirical evidence is presented which substantiates the supposition that the presence of cash substitutes – namely inventory and accounts receivable – entails lower cash holdings. Furthermore, it is confirmed that working capital management efficiency – measured by the cash conversion cycle – is positively related to cash level. The discussion of the empirical findings pays regard to the different subordinate components of both cash substitutes and working capital management efficiency. Implications of the detected findings are highlighted with respect to their potential utility for the achievement and maintenance of a firm’s target cash level.

In the first essay, "Why Won't You Forgive Me? Evidence of a Financial Misreporting Stigma in Bank Loan Pricing," we examine the relation between bank loan pricing and intentional financial misreporting. Firms that misreport financial information pay greater spreads on their bank loans for five years following their restatements, whether benchmarked against their pre-restatement loans or similar loans made to matched non-misreporting firms. Misreporting firms that promptly replace certain parties who are potentially related to the misreporting see their spreads fall to benchmark levels within three years following restatement. Large fractions of firms, however, do not promptly replace the potentially related parties and continue to pay premiums over benchmark spread levels for five years following restatement. The results suggest that misreporting creates a long-lasting and costly stigma, but that certain actions can reduce the duration of the stigma. In the second essay, "Can Shareholder-Creditor Conflicts Explain Weak Governance? Evidence from the Value of Cash Holdings," we look into whether shareholder-creditor conflicts generate costs large enough to prevent improvements in governance. If firms choose to remain weakly governed, some cost must prevent improvements. We address our research question by estimating the value of cash as a function of governance, leverage, and the interaction of the two. We find that governance increases the value of cash, but that leverage reduces the gain from strong governance. However, the magnitudes are far too small to explain why weak governance firms remain weakly governed. Our estimates suggest more than 80 percent of weakly governed firms would increase the value of their cash by improving governance. In fact, half of weakly governed firms would increase the value of their cash holdings by $0.35 or more per dollar held by improving governance. Our focus on cash holdings does not seem to drive our results, nor do endogenous governance choices or nonlinearities reverse our conclusions.

English Abstract Drawing on agency theory and the institutional perspective, this paper aims to examine the relationship between corporate governance and cash holdings for the business group-affiliated firms listed on the Taiwan Stock Exchange and in the Over-The-Counter market. The empirical results reveal that the group-affiliated firms hold more cash than non-affiliated firms. The findings show that the entrenched business group effects dominate the institutional network group¡¦s effects and indicate that the presence of a pyramidal group ownership structure in the group-affiliated firms leads to a principal-principal conflict and therefore an increase in agency problems. To avoid the confounding effect by which the different corporate governance mechanisms would lead to different predictions regarding corporate governance effectiveness, this paper constructs a corporate governance index by aggregating the six characteristics related to corporate governance effectiveness: the cash flow rights, the control-cash flow rights deviation, the control-affiliated directors, the control-affiliated supervisors, board independence, and the ITDRS rankings. The results show that good governance mechanisms are effective in mitigating the principal-principal agency costs and moderating the effect of group affiliation in affiliated firms¡¦ cash holdings. Keywords: Business Group-Affiliated Firms, Cash Holdings, Corporate Governance, Board Structure, Group Diversity

This dissertation studies the Economic and Monetary Union (EMU) and its effects on foreign exchange markets and corporate cash holdings. These two potential effects are examined in the dissertation in two separate essays. The first essay examines the validity of the purchasing power parity (PPP) condition during three distinct exchange rate regimes (floating-rate, target-zone arrangement, and fixed-rate or common currency) from January 1973 through January 2004. My results support PPP, but I find that PPP during the common currency regime holds in fewer EMU countries than during the alternative exchange rate regimes. In addition, PPP between currency blocs holds for all countries examined during the first two regimes, but deteriorates after the introduction of the euro for the EMU countries as opposed to the non-EMU countries. I do not obtain strong evidence supporting PPP for the EMU countries since the euro adoption, but the faster mean reversion I observe in the few EMU countries where PPP does hold, may signal higher market efficiency and economic integration in the future. The second essay investigates corporate liquidity (cash holdings of firms) from 15 European Union (EU) countries [12 Economic and Monetary Union (EMU) countriesthat adopted the euro, and 3 non-EMU countries] from 1993 to 2002 using a dynamic panel data model. My main contributions to the corporate liquidity literature are fourfold. First, I provide evidence that creditor rights also affect corporate liquidity and their effect is more consistent than that of shareholder rights. Second, I show that the recent formation of EMU affects corporate liquidity. Debt and net working capital are better substitutes for cash in EMU countries than non-EMU countries. The adoption of a common currency reduces cash holdings in EMU countries. Third, my results suggest that agency theory plays an important role in explaining corporate liquidity. In particular, the agency view explains corporate liquidity better for EMU firms, probably because of an enhanced capital market integration that weakens the transaction and precautionary motives of holding cash. Fourth, I show that dealing with the endogeneity problem in corporate liquidity studies is important.

The role of information is central to the study of corporate finance. In the real world where one party usually has more and better information, information asymmetry forms the basis of analysis in many key aspects of modern economics including contract theory and principle-agent problems. Although technology facilitates information flow, information continues to play an important role because we live in an environment in which there is more information and information that is more complex. Moreover, we are experiencing a fundamental shift towards a knowledge-based economy in which ideas and concepts, both in the form of information, gain importance. This thesis examines the role of information as we make this transition in two separate settings: First in a “real impact” setting where knowledge generated at leading research universities spills over into firms nearby, and second, in a "traditional market" setting where analysts help disseminate information. In the post-industrial economy of the 21st century, innovation is the engine of economic growth. As a result, we increasingly value human capital and knowledge. Chapter 2 looks at the location of firms relative to knowledge centers and its impact on stock volatility. I argue that knowledge spillovers foster firm R&D and find supporting evidence. My evidence is consistent with the classic models on the impact of human capital on economic growth (Nelson and Phelps, 1966). Chapter 3 examines the impact of knowledge and innovation on firms’ cash management policies. Bates, Kahle, and Stulz (2009) find that the average cash-to-assets ratio for firms more than doubles in the past decades and attribute it to changing firm characteristics. I identify innovation as a driving force behind these changes, resulting in firms holding more cash as a precaution. In Chapter 4, I study the investment value of information from analysts, or more specifically, analyst target prices. Due to potential conflicts of interest problems, the value that analysts provide to investors remains controversial. Moreover, since the information age is characterized by information overload, it is harder for investors to identify relevant information. I find that institutions trade in the same direction as the consensus target price movement. / Thesis (Ph.D, Management) -- Queen's University, 2012-03-07 14:20:20.178

This study examines the effect of corporate liquidity and investor protection on the relation between financial distress and equity returns using a European sample over the 2002-2016 period. The results show that returns are hump-shaped and decreasing for increasing default risk. This can be rationalized by corporate liquidity indicating that higher cash holdings decrease liquidity risk. Moreover, firms in countries with high investor protection exhibit a more severe decrease of returns when default risk increases relative to firms in countries with low investor protection. This is because of the legal system that allows investors to renegotiate upon distress and to more accurately price equities.