International Takeover Laws and Corporate Cash Holdings

Abstract

I examine the impact on corporate cash holdings of international merger and acquisition (M&A) laws, which facilitate corporate takeovers. I use the staggered enactment of M&A laws from 1992 to 2005 and a sample spanning 34 jurisdictions, and find that levels of corporate cash holdings increase after the passage of M&A laws. I also find that firms with higher earnings volatility, superior performance, higher P/E ratio, and in jurisdictions with high M&A intensity hoard more cash after the enactment of M&A laws. Additional analysis shows that these firms decrease dividends and capital expenditure and increase cash-based acquisitions in the post-M&A law period. And the effect is manifested in the subsample of firms in jurisdictions with better institutional environments. Lastly, I find that investor valuations of cash holdings decrease after the enactment of M&A laws. Collectively, the results suggest that managers hoard cash to finance M&A activities after the enactment of M&A laws, driven by the motive of empire-building, and that cash hoarding behaviors are viewed by investors as value-decreasing.

Date of Award	14 Apr 2023
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Jianbo SONG (External Supervisor) & Xindong ZHU (Supervisor)