Kevin Troy Chua

The management of an entity faces diverse decisions concerned with corporate operations and financing choices. Investigating various factors affecting a company’s cash holdings provides valuable insights into the decision-making processes of an organization. This study examines the effect of Anti-Takeover Provisions (ATPs), Managerial Overconfidence, and their interaction on the level of an entity’s cash holdings. Conducting a regression analysis, this study examines 3,409 firm-year observations from Korean listed entities covering 2011 to 2018. Results reveal that anti-takeover provisions positively influence an entity’s cash holdings (coefficient = 0.464, t-stat value = 7.83). Additionally, managerial overconfidence negatively affects cash holdings (coefficient = –0.140, t-stat value = –2.77). Furthermore, the interaction between anti-takeover provisions and managerial overconfidence significantly influences cash holdings (coefficient = –0.402, t-stat value = –3.46), especially in firms employing specific provisions such as supermajority vote requirements for executive dismissal (coefficient = –0.445, t-stat value = –2.73), issuance of convertible preferred stock (coefficient = –0.341, t-stat value = –1.76), and golden parachutes (coefficient = –0.715, t-stat value = –3.02). This study provides empirical evidence on how anti-takeover provisions and managerial traits influence corporate cash reserves. The study offers valuable insights for regulators, investors, and corporate management. It also emphasizes prudent cash management, urging firms, especially those with anti-takeover provisions and overconfident management, to reconsider financial policies to mitigate risks associated with aggressive decision-making.

This study examines the effect of corporate governance on a company’s cash holdings, focusing on a firm’s compliance levels with core corporate governance indicators as outlined in the corporate governance report. Utilizing a random effect generalized least squares (GLS) regression model, this study evaluates 812 firm-year observations from Korean publicly traded companies covering the period 2018 to 2021. The results indicate that companies with robust governance structures generally maintain lower levels of cash holdings (coefficient = –0.0263, p-value = 0.044), corroborating the flexibility hypothesis. Moreover, higher compliance levels with governance matters concerning shareholder protection (coefficient = –0.0388, p-value = 0.090) and board of directors (coefficient = –0.0512, p-value = 0.052) are associated with reduced cash holdings. Further analysis, accounting for a firm’s organizational capital, underscores that the inverse relationship between corporate governance and cash holdings is more pronounced in organizations with lesser organizational capital (coefficient = –0.0548, p-value < 0.01). This study contributes empirical evidence showing that strict compliance with core corporate governance indicators, indicative of strong corporate governance, substantially affects a firm’s cash management. Additionally, this study offers valuable insights for regulatory authorities and investors and enhances the existing body of knowledge on the interplay between corporate governance and cash holdings.