Corporate Governance and Cash Holdings in Hospitality Firms: Do Board Characteristics Matter?

Abstract

This paper study the relationships between corporate governance mechanisms and cash holdings, and the joint effects on firm performance. We test if these governance attributes are related to cash holdings among firms in the hospitality industry. Our sample consists of public listed hospitality firms in Malaysian and Singapore from the year 2005 to 2013. Different from the past literature which mainly adopted the ordinary least squares regression (OLS) model, this study uses panel regression tests to test the link between the variables and the cash holdings level. We adopt the generalized method of moment (GMM) estimation to control the possible endogenous problem. The results indicate that board of director characteristics plays a pivotal role in cash holdings. We find that board independence, board duality, board busyness and ownership structure are significantly associated with the cash reserves. We find that although the relationship between good governance and corporate liquidity are not significant during crisis in general, the benefits are more pronounced during sudden crisis (Cobra type). The impact of such crisis is found to be significantly alleviated for firms with high cash holdings and good governance. The findings should provide valuable information in developing strategies on cash management. This study provides insight on the importance of the disciplinary and monitoring role of boards of directors.