The Effect of Governance Mechanisms on Small and Medium-Sized Enterprise Cash Holdings: Evidence from the United Kingdom

Basil Al‐Najjar

57 citations0/0 files storedJournal of Small Business Management

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Corporate Finance and Governance Banking stability, regulation, efficiency Working Capital and Financial Performance

Abstract

This paper investigates the impact of governance mechanisms on small and medium-sized enterprise (SME) cash holdings from 2000 to 2009, employing static and dynamic panel data analyses. We find no evidence that firm governance index and insider ownership affect cash holdings. This might indicate that governance mechanisms in SMEs are relatively weak. We also report that chief executive officer compensation has a positive effect on cash holdings. Firm-specific factors such as firm size, leverage, and liquidity negatively affect cash holdings, whereas the research and development ratio and operating risk are positively associated with them. Finally, SMEs have target cash holdings and adjust to these.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1936The General Theory of Employment, Interest and Money.1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1984The Capital Structure Puzzle 1984Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have 1936The General Theory of Employment, Interest and Money, by John Maynard Keynes 2003Corporate Governance and Equity Prices

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