Cash holdings of politically connected firms

Narjess Boubakri, Sadok El Ghoul, Walid Saffar

Research output: Journal article publicationJournal articleAcademic researchpeer-review

37 Citations (Scopus)


Politically connected firms benefit from soft-budget constraints and are unlikely to suffer from liquidity constraints. This argument suggests that politically connected firms should hold less cash than non-connected peers. Another view posits that these firms exhibit acute corporate governance problems. In this setting, politically connected firms are more likely to hold more cash than non-connected firms. Using a sample of 50,119 firm-year observations from 31 countries, we find that politically connected firms hold more cash than their non-connected peers. We put forth two explanations for this result. Firstly, politicians use politically connected firms as "cash cows" to advance their political agendas. Secondly, political connections are conducive to agency problems. In additional analyses, we find that the positive relationship between political connections and cash holdings is stronger when corporate governance is weak.
Original languageEnglish
Pages (from-to)338-355
Number of pages18
JournalJournal of Multinational Financial Management
Issue number4
Publication statusPublished - 1 Oct 2013


  • Cash holdings
  • Corporate governance
  • Political connections

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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