Information shocks and corporate cash policies

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)


We examine how information environment affects corporate cash policy by examining the change in cash holdings around two events that lead to exogenous change in information environment, namely the initial enforcement of insider trading laws (ITLs) and the mandatory adoption of IFRS in European Union (EU) countries. Using a difference-in-differences approach, we find that firms decrease their cash holdings after both events. The decrease in cash holdings is more pronounced for firms with higher precautionary savings demand and with more severe agency problems. Additional tests show that the sensitivity of investment to cash holdings declines after the two events, consistent with the notion that the benefit of cash holdings in mitigating underinvestment and the private benefit of overinvesting cash holdings reduce after the events. Overall, our findings provide evidence that information environment improvements have real decision effects.

Original languageEnglish
Pages (from-to)5-28
Number of pages24
JournalJournal of International Accounting Research
Issue number1
Publication statusPublished - 1 Mar 2020


  • Cash holdings
  • IFRS adoption
  • Initial enforcement of insider trading laws
  • Market friction

ASJC Scopus subject areas

  • Business and International Management
  • Accounting


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