Multiple large shareholders and cash holdings: Evidence from China

We examine the governance role of multiple large shareholders (MLS) in the context of corporate cash holding policy. Using a sample of Chinese firms, we find strong evidence that the presence of MLS increases the level of cash holdings. This relationship is robust across alternative measures of key variables, model specifications, and identification strategies. The positive impact of MLS on cash holdings is more pronounced in firms with more investment opportunities, higher financial constraints, greater risk-seeking behavior, non-state control, better investor protection, and more related party transactions. Overall, the findings suggest that: (i) the large cash holdings of firms with MLS do not necessarily indicate the (in)effectiveness of MLS in corporate governance, and (ii) the presence of MLS ensures that the cash holdings of growth firms can be used in favor of large shareholders.