The sensitivity of cash holding levels to internal corporate governance mechanisms in the U.S. market

Abstract

This study investigates the influence of internal corporate governance mechanisms on cash holding levels in the context of agency theory. Extant literature on corporate governance and cash holdings has generally revealed inconsistent findings that contradict agency theory predictions. Thus, motivated by providing management and shareholders with a clear explanation of this relationship, the study used panel data involving 409 non-financial firms listed in the S&P 500 between 2012 and 2022 to examine this relationship. Cash holding levels were measured with two distinct methods to ensure the reliability and constancy of results. The modelled relationships were derived using ordinary least squares as a main regression and random effects as a robustness test to enhance the results’ credibility. The findings represent mixed results of the association between board’s size, gender diversity, independence, and CEO’s compensation with cash holding that contradicts agency theory predictions. Moreover, the findings also show that the CEO’s duality has no effect on cash holdings. This evidence suggests that further research is required to elucidate the influence of internal corporate governance mechanisms on cash holding levels.