Foreign Ownership and Corporate Cash Holdings in Emerging Markets

• Published date: 01 June 2018
• Author: Xuan Vinh Vo
• DOI: http://doi.org/10.1111/irfi.12130
• Date: 01 June 2018

Foreign Ownership and Corporate

Cash Holdings in Emerging Markets*

XUAN VINH VO

†,‡

†

University of Economics Ho Chi Minh City, Ho Chi Minh City, Vietnam and

‡

CFVG Ho Chi Minh City, Ho Chi Minh City, Vietnam

ABSTRACT

This article examines the link between foreign ownership and corporate cash

holdings. We utilize a data sample of firms listed on the Ho Chi Minh City

stock exchange covering the period 2007–2015. Employing different

econometric techniques for panel data, we find that higher foreign ownership

is associated with more corporate cash holdings. This finding suggests that

foreign investors in the Vietnam stock market are subject to precautionary

motive and agency motive forcing firms to hold more cash. However, the

outcome suggests potential agency problems because managers might

subsequently use this cash reserve for their own advantages. These problems

are even more pronounced in emerging markets where investor protection

mechanism is weak. Accordingly, this highlights the importance of a

monitoring mechanism to refrain corporate managers from investing in

value-destroying projects.

JEL Codes: G30; G32

I. INTRODUCTION

Corporate cash holding is an important topic in finance that has received

increasing interest from different stakeholders. Practically, cash holdings play

an important role in the firm’s balance sheet (Tong 2011). Accordingly, a huge

volume of theoretical studies in the literature has been devoted to this topic.

However, the empirical studies on corporate cash holdings have received

increasing attention by academics only in the last decades (Bigelli and Sánchez-

Vidal 2012).

In this paper, we analyze this promising topic by shedding further light into

the relationship between foreign ownership and corporate cash holdings in the

Vietnam stock market. We employ a data set of firms listed on the Ho Chi Minh

City stock exchange covering the period 2007–2015. We fill the gap by providing

an analysis on the unexplored topic in the context of a key emerging market.

* We would like to thank Professor Ramo Gencay (the managing editor) for critical comments and

helpful suggestions that greatly improve the brevity of the paper. We thank Huynh Anh Duong for

excellent research assistance. Any remaining errors are our own responsibility.

© 2017 International Review of Finance Ltd. 2017

International Review of Finance, 2017

DOI: 10.1111/irfi.12130

International Review of Finance, 18:2, 2018: pp. 297–303

DOI:10.1111/irfi .12130

© 2017 International Review of Finance Ltd. 2017