Corporate Governance and the Marginal Cash Value for Korean Retail Firms

Kim,, S. , & Lee,, J. (2016). Corporate Governance and the Marginal Cash Value for Korean Retail Firms. The Journal of Distribution Science, 14(5), 27-37, https://doi.org/https://doi.org/10.15722/jds.14.5.201605.27

copy

Abstract

Purpose - Prior theories expect a lower marginal value of cash for weak governance firms. To test this hypothesis, we examine the relationship between corporate governance structures and marginal cash values in Korean retail firms. Research design, data, and methodology - We estimate marginal cash values based on the model of Faulkender & Wang (2006). The retail firms listed in Korean Stock Exchange from 2005 to 2013 are analyzed. Corporate governance scores are provided by Korean Corporate Governance Services. Results - We show a higher marginal value of cash for the weak governance retail firms in terms of total governance score. Our analysis on a detailed set of governance scores generally confirms this tendency. Yet, a higher marginal cash value is obtained for the firms with better board structures and dividend policies. Conclusions - Our findings argue against the agency view of cash policy predicting a negative relationship between corporate governance scores and marginal cash values. A low marginal value of cash, widely observed in the sample firms, also supports severe resource diversion problem in Korean corporations.

keywords: Cash Management, Corporate Governance, Manager-Shareholder Conflicts, Marginal Value of Cash

Reference

Almeida, H., Campello, M., & Weisbach, M. S. (2004). The Cash Flow Sensitivity of Cash. The Journal of Finance, 59(4), 1777-1804.

Bae, K. H., Kang, J. K., & Kim, J. M. (2002). Tunneling or Value Added? Evidence from Mergers by Korean Business Groups. The Journal of Finance, 57(6), 2695-2740.

Baek, J. S., Kang, J. K., & Lee, I. (2006). Business Groups and Tunneling: Evidence from Private Securities Offerings by Korean Chaebols. The Journal of Finance, 61(5), 2415-2449.

Bolton, P., Chen, H., & Wang, N. (2011). A Unified Theory of Tobin'sq, Corporate Investment, Financing, and Risk Management. The Journal of Finance, 66(5), 1545-1578.

Dittmar, A., & Mahrt-Smith, J. (2007). Corporate Governance and the Value of Cash Holdings. Journal of Financial Economics. 83(3), 599-634.

Faulkender, M., & Wang, R. (2006). Corporate Financial Policy and the Value of Cash. The Journal of Finance, 61(4), 1957-1990.

Gamba, A., & Triantis, A. (2008). The Value of Financial Flexibility. The Journal of Finance, 63(5), 2263-2296.

Gong, J. (2006). The Determinants of Corporate Cash Holdings. The Korean Journal of Finance, 19(1), 1-42.

Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. American Economic Review, 96-118.

10.

Jensen, M. C. (1986). Agency cost of free cash flow, corporate finance, and takeovers. Corporate Finance, and Takeovers. American Economic Review, 76(2), 323-329.

11.

Kaplan, S. N., & Zingales, L. (1997). Do Investment-Cash Flow Sensitivities provide Useful Measures of Financing Constraints?. The Quarterly Journal of Economics, 169-215.

12.

Kim, S. S., & Lee, J. H. (2016). The Marginal Value of Cash in Korean Retail Firms. Journal of Distribution Science, 14(2), 13-22.

13.

Lee, J. H., & Liu, W. S. (2015). Pecking Order Prediction of Debt Changes and Its Implication for the Retail Firm. Journal of Distribution Science, 13(10), 73-82.

14.

Lim, K. M., & Choi, Y. S. (2006). A Study on the Pattern Changes and Determinants of Corporate Cash Holding. KDI Series in Economic Policy. 11, 1-48.

15.

Nikolov, B., & Whited, T. M. (2014). Agency Conflicts and Cash:Estimates from a Dynamic Model. The Journal of Finance, 69(5), 1883-1921.

16.

Park, S. H., & Yon, K. H. (2005). The Effect of Corporate Governance on the Level of a Firm's Cash Holdings. Asian Review of Financial Research, 22(2), 1-36.

17.

Pinkowitz, L., Stulz, R., & Williamson, R. (2006). Does the contribution of corporate cash holdings and dividends to firm value depend on governance? A cross‐country analysis. The Journal of Finance, 61(6), 2725-2751.

18.

Son, S. H. (2015). A Study on the Cash Policies of Retail Firms. Journal of Distribution Science, 13(3), 69-77.

19.

Son, S. H., Kim, T. H., & Yoon, B. H. (2009). Testing the Linear Asset Pricing Models in the Korean Stock Market. Korea Journal of Financial Studies, 38(4), 547-568.

바로가기메뉴

Article Contents

Vol.14 No.5

Corporate Governance and the Marginal Cash Value for Korean Retail Firms

Abstract

Reference

The Journal of Distribution Science