title: Three Studies on Corporate Governance and Cash Holdings
Creators: name: Atif, Muhammad
Publisher: name: Griffith University
Year: 2018
Subjects: subject: Corporate governance and cash holdings
subject: Australia and the US
subject: Australia’s Remuneration Amendment Act 2011
subject: Impact of board gender diversity on cash holdings
subject: Non-financial firm performance
subject: CEO compensation structure
subject: Corporate environmental, social, and governance (ESG) performance

description: This thesis is structured around three interrelated empirical studies investigating the relationship between corporate governance and cash holdings in Australia and the US. Several reasons make this relationship both important and worth investigating empirically: (i) large cash holdings around the world and particularly in Australia and the US, (ii) the increased attention of regulators towards strengthening shareholder say on pay, (iii) the proliferated attention of regulators around the world calling for greater gender diversity on boards, (iv) the emergence of non-financial firm performance (environmental, social and governance – ESG) as a holistic mechanism in firm evaluation by investors, (v) the relatively small body of literature investigating this relationship, and (vi) a unique Australian setting: mandatory say on pay. The first empirical study examines the impact of Australia’s Remuneration Amendment Act 2011 on CEO compensation and its spill-over effect on cash holdings in order to better understand how the new legislation affects the principal–agent relationship. This study finds, using a sample of ASX top 300 firms from 2004 to 2015 that the Act leads to more use of equity-based compensation. The study also reports that, after the introduction of the Act, CEO equity-based and total compensations are negatively (positively) related with (the value of) cash holdings: that is, more equity and total compensations lead to lower cash holdings (a spill-over effect), indicating alignment of the principal–agent interests. These results are robust to different estimation techniques. This study contributes to the CEO compensation literature by providing a strong empirical evidence that the regulations (the Act) are effective in changing the CEO compensation structure, leading to more equity-based incentives and fewer cash bonuses across the market of large and established Australian firms. The study demonstrates in a novel piece of evidence that the Act has the capacity to influence the CEO compensation structure as well as other key decisions such as cash holdings and praises the Act for these achievements. The findings of this study provide important insights into the discussion on compensation regulations. The second empirical study examines whether board gender diversity affects corporate cash holdings using S&amp;P 1500 indexed firms in the US for the period 2006–2015. This study documents a significantly negative relationship between board gender diversity and cash holdings. The study also finds, in a channel analysis, that female independent directors have a strong negative effect on cash holdings, consistent with the monitoring function. Moreover, the study finds that the presence and voice of female directors have a negative impact on cash holdings, consistent with critical mass theory. These findings are robust to alternative econometric specifications, alternative measures, propensity score matching, and difference-in-differences. This study extends the recent body of gender diversity literature by providing strong empirical evidence of the negative impact of board gender diversity on cash holdings – a key corporate decision. It also contributes to the growing research that links women on boards to the monitoring function. This study also extends gender diversity literature by providing empirical evidence consistent with the critical mass theory that women’s presence and voice are strongly associated with cash holding decisions. This study offers useful insights into the current global debate on gender diversity and its implications for firms. The third empirical study examines whether corporate environmental, social, and governance (ESG) performance affects corporate cash holdings in S&amp;P 1500 indexed US firms for the period 2006 to 2015. This study documents a significantly negative relationship between ESG and cash holdings in general, and finds a negative effect of ESG on cash holdings in the introduction, growth, and decline/shakeout stages of the firm life-cycle in particular, consistent with having a strong governance mechanism. These findings are robust to alternative econometric specifications, alternative measures of ESG, cash holdings, and the firm life-cycle; they are also robust to propensity score matching and using an instrumental variable approach. This study contributes to the recent body of literature on ESG by providing strong empirical evidence of a negative effect of firms’ ESG performance on cash holdings. This study also contributes to the growing body of literature linking corporate policies with different stages of the firm life-cycle (e.g., Dickinson, 2011; Faff et al., 2016) by shedding new light on the relationship between the firm life-cycle and cash holdings. This study highlights the role of ESG as a holistic governance mechanism, suggesting that ESG negatively affects cash holdings in the introduction, growth, and decline stages of the firm life-cycle because of both better access to the capital market and a reduction in the agency problem. This study compliments the current discussion on the importance for firms as well as investors and stakeholders to consider EGS before making investment decisions. From the findings of these interrelated studies, this research concludes that say on pay is imperative to strengthen corporate governance in Australia. It also supports the notion that regulations such as the Remuneration Amendment Act 2011 could provide better governance mechanism. Moreover, the research finds board gender diversity to be an important factor in strengthening internal governance mechanism, enhancing board monitoring functions and helping to reduce the agency problem. Lastly, the research provides insights into the importance of ESG as a holistic internal and external governance mechanism for firms, stakeholders and society at large. This thesis documents the contributions of this research to the global debate on say on pay regulations, calls for greater board gender diversity, and to the importance of ESG for firms and investors.