Corporate characteristics and cash policy: Stand-alone vs. corporate group firms

Abstract

I first show that private (unlisted) stand-alone firms hold more cash reserves than private corporate group firms do. This result attributes to presence of internal capital market within corporate group firms. By combining evidence from across public and private firms as well as within public firms across different qualities of governance, I also show that stand-alone firms cash policy reflects much higher agency costs than group firms' in public (listed) firm samples. Specifically, agency problems not affect not only the target level of cash, but also how managers react to cash in excess of the target.