TY  - JOUR
AU  - Pinkowitz,Lee
AU  - Stulz,Rene M.
AU  - Williamson,Rohan
TI  - Do Firms in Countries with Poor Protection of Investor Rights Hold More Cash?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10188
PY  - 2003
Y2  - December 2003
UR  - http://www.nber.org/papers/w10188
L1  - http://www.nber.org/papers/w10188.pdf
N1  - Author contact info:
Rene M. Stulz
The Ohio State University
Fisher College of Business
806A Fisher Hall
Columbus, OH 43210-1144
Tel: 614/292-1970
Fax: 614/292-2359
E-Mail: stulz_1@cob.osu.edu

Rohan Williamson
Georgetown University
Finance Group
McDonough School of Business
587 Hariri Building
Washington, DC 20057
Tel: 202 687 2284
Fax: 202 687 4031
E-Mail: WILLIARG@georgetown.edu
AB  - Managers make different decisions in countries with poor protection of investor rights and poor financial development. One possible explanation is that shareholder-wealth maximizing managers face different tradeoffs in such countries (the tradeoff theory). Alternatively, firms in such countries are less likely to be managed for the benefit of shareholders because the poor protection of investor rights makes it easier for management and controlling shareholders to appropriate corporate resources for their own benefit (the agency costs theory). Holdings of liquid assets by firms across countries are consistent with Keynes' transaction and precautionary demand for money theories. Firms in countries with greater GDP per capita hold more cash as predicted. Controlling for economic development, firms in countries with more risk and with poor protection of investor rights hold more cash. The tradeoff theory and the agency costs theory can both explain holdings of liquid assets across countries. However, the fact that a dollar of cash is worth less than $0.65 to the minority shareholders of firms in such countries but worth approximately $1 in countries with good protection of investor rights and high financial development is only consistent with the agency costs theory.
ER  -