The Influences of Large Shareholder Governance Regimes on the Value of Cash Holdings: Based on the Perspectives of Tunneling and Propping Motives

Abstract

Abstract:

To help companies employ cash policies suited for their governance environments, this paper studies the mechanism of majority shareholder governance regimes affecting the value of cash holdings from two perspectives:Tunneling and Propping motives. Based on the data between 2002 and 2013 from China's A-share listed companies, using threshold regress models, large shareholder governance regimes are divided into two types:Balance and Dictatorship, and the corresponding values of cash holdings are tested and compared. The empirical results show that, compared to Balance regime, the value of cash holdings under Dictatorship regime is lower, and this gap is more significant for non-state-owned companies. The results of further tests show that, Dictatorship regime reinforces large shareholders' Tunneling and Propping motives in non-state-owned companies, and Tunneling motives in state-owned companies, but not Propping motives in state-owned companies. The conclusion is that, companies should hold more cash under Balance regime and less cash under Dictatorship regime.

Key words: large shareholder governance, tunneling, propping, value of cash holdings, threshold regression

Tang Jingqing, Liu Shuhai, Zhang Junmin. The Influences of Large Shareholder Governance Regimes on the Value of Cash Holdings: Based on the Perspectives of Tunneling and Propping Motives[J]. , 2016, 28(7): 53-65.

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