Foreign institutional investors and the value of excess cash holdings: international evidence
International Journal of Accounting & Information Management
ISSN: 1834-7649
Article publication date: 12 September 2023
Issue publication date: 13 November 2023
Abstract
Purpose
Using a comprehensive sample from developed and emerging economies, this study aims to examine whether foreign institutional investors (FIIs) enhance the value of excess cash by constraining the potential self-appropriating managerial propensity related to its inefficient utilization.
Design/methodology/approach
This study uses a large panel data set of firms from 32 non-US countries from 2007 to 2018. Using data from COMPUSTAT Global and S&P Capital IQ, this study uses ordinary least squares regression with year- and firm-fixed effects for the baseline analysis. In addition, two-stage least squares with instrumental variable regression and propensity score matching approaches were used to address the potential endogeneity.
Findings
This study shows that FIIs significantly increase the value of excess cash holdings. The authors also found that the positive impact of FIIs is more significant when investors come from common-law countries with better governance and investor protection. Furthermore, in countries and firms with weaker governance controls, the relationship between FIIs and the value of excess cash is stronger, consistent with the institutional monitoring hypothesis. Collectively, the findings imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.
Practical implications
Collectively, the findings of this study imply that FIIs are advantageous to investees because they effectively promote the efficient deployment of corporate resources.
Originality/value
This study offers new evidence on how FIIs impact the value of excess cash in an international setting. In addition, it highlights the significance of the legal origin of institutional investors’ home country and the governance quality of host countries and investee firms in influencing the effect of foreign institutional monitoring on the value of excess cash.
Keywords
Acknowledgements
The authors would like to thank the editor, Professor Han Donker, and the anonymous referees for their insightful comments. The authors greatly appreciate Niazi Dilawar and the NUST Business School Research Committee members for their constructive comments. This research was supported by the Higher Education Commission of Pakistan (Grant No: 315-20301-2BE3-182).
Declaration of interest: None.
Funding: This research is supported by the Higher Education Commission of Pakistan (Grant No: 315-20301-2BE3-182).
Citation
Ilyas, M., Mian, R.U. and Mian, A. (2023), "Foreign institutional investors and the value of excess cash holdings: international evidence", International Journal of Accounting & Information Management, Vol. 31 No. 5, pp. 705-725. https://doi.org/10.1108/IJAIM-04-2023-0078
Publisher
:Emerald Publishing Limited
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