Chief Executive Officers’ monitoring, board effectiveness, managerial ownership, and cash holdings: evidence from ASEAN

This study examines the role of corporate governance mechanisms in the handling of cash reserves among firms in the ASEAN region. A panel regression was employed along with the Generalized Method of Moments approach on a sample of 648 listed firms from the ASEAN markets for 2005–2015. We documented that strong governance mechanisms, including a lower managerial ownership, a higher proportion of board independence and founder-Chief Executive Officer (CEO), positively impact cash holdings (CH), indicating lower agency cost and supporting the interest alignment hypothesis. In contrast, higher level of managerial and board ownership, bigger board and dual leadership structure negatively affect CH, supporting the entrenchment hypothesis. The negative effect of managerial entrenchment on CH is mitigated with a higher proportion of independent board and founder-CEO. Robustness tests show that CEO-duality becomes more important while founder-CEO becomes less important in countries with weak investors’ protection. These findings support the idea that a strong governance mechanism plays an important disciplinary role to mitigate the effect of agency conflicts on the cash management policy.