Corporate cash holdings : an empirical comparison of Norwegian public and private firms

Abstract

Analyzing Norwegian firms, we find that public firms hold more cash and have lower operating performance, compared to private firms. These results indicate presence of agency costs in public firms, which lead to cash hoarding, as managers value the flexibility cash provides. We find evidence that excess cash has a negative effect on performance. The result is robust towards different measures of performance, and implicates that shareholders in public firms should pay more attention to the firm’s cash policy. When competition is low, cash has a negative effect on performance, while there is no significant effect when competition is high. This indicates support for holding excess cash in competitive industries.