Shareholder perks and cash holdings: Board influence in firms with and without perks

Abstract

This study investigates the impact of shareholder perks (SHP) on cash holdings (CH) and examines whether the role of the board of directors (BOD) affects CH in shareholder-perk (SHP) and non-shareholder-perk (NON-SHP) firms in Japan. Using a sample of 3526 firms from 2005 to 2022, the findings show that firms with perk programs hold lower cash compared to their counterparts, reducing free cash flow agency conflicts. Independent directors and female directors encourage CH, indicating lower agency costs. In contrast, larger board size, executive directors, and male directors decrease CH, consistent with agency theory. In sub-sample analyses, independent and female directors encourage CH in both SHP and NON-SHP firms. In contrast, a higher number of executive and male directors decreases CH in NON-SHP firms while encouraging CH in SHP firms. Board size plays an effective role only in NON-SHP firms. Several econometric methods support the results. The findings illuminate the significance of SHP and board composition in cash management and corroborate the BOD's varied effect on CH policy.