Advanced

The Impact of Agency Costs on Corporate Cash Holdings. A Study of German Public and Private Tech Companies

Neufert, Simon LU (2016) NEKP03 20161
Department of Economics
Abstract (Swedish)
Purpose: The main objective of this thesis is to examine the effect different drivers
of agency costs have on corporate cash holdings in public and private
German technology firms. The analysis identifies three potential
sources of agency costs. By determining target cash levels first and then
obtaining deviations from these targets, the influences of agency costs
are measurable.
Data Set: The sample consists of 97 public firms, which were identified through
the Deutsche Börse AG stock exchange, and 21 private firms, which
were identified through the Bureau van Dijk’s Orbis database. Financial
and non-financial information were then drawn from CapitalIQ for the
period of 2004 to 2014. Further, TecDax data for this period... (More)
Purpose: The main objective of this thesis is to examine the effect different drivers
of agency costs have on corporate cash holdings in public and private
German technology firms. The analysis identifies three potential
sources of agency costs. By determining target cash levels first and then
obtaining deviations from these targets, the influences of agency costs
are measurable.
Data Set: The sample consists of 97 public firms, which were identified through
the Deutsche Börse AG stock exchange, and 21 private firms, which
were identified through the Bureau van Dijk’s Orbis database. Financial
and non-financial information were then drawn from CapitalIQ for the
period of 2004 to 2014. Further, TecDax data for this period complement
the company information. Overall the sample contains 1240
unique observations.
Methodology: The paper follows a quantitative approach where panel data regressions
are estimated. In order to test how agency costs influence excess cash
holdings, three distinct models are utilized. The first is set up to prove
that firms do have cash targets. The second determines the level of these
cash targets. Deviations from these cash targets are defined as excess
cash. In the third model, excess cash holdings are then explained by the
three drivers of agency costs.
Results: The study finds that agency costs do exist and significantly influence a
firm’s cash holding decision. Threat of takeovers, corporate governance
quality, and bank power are shown to be jointly significant. With an
increase of these variables agency costs decline and so does excess
cash. (Less)
Please use this url to cite or link to this publication:
author
Neufert, Simon LU
supervisor
organization
course
NEKP03 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Keywords: agency costs, cash holdings, excess cash, Germany, technology industry, bank power, TecDax
language
English
id
8889626
date added to LUP
2016-09-26 10:23:26
date last changed
2016-09-26 10:23:26
@misc{8889626,
  abstract     = {Purpose: The main objective of this thesis is to examine the effect different drivers
of agency costs have on corporate cash holdings in public and private
German technology firms. The analysis identifies three potential
sources of agency costs. By determining target cash levels first and then
obtaining deviations from these targets, the influences of agency costs
are measurable.
Data Set: The sample consists of 97 public firms, which were identified through
the Deutsche Börse AG stock exchange, and 21 private firms, which
were identified through the Bureau van Dijk’s Orbis database. Financial
and non-financial information were then drawn from CapitalIQ for the
period of 2004 to 2014. Further, TecDax data for this period complement
the company information. Overall the sample contains 1240
unique observations.
Methodology: The paper follows a quantitative approach where panel data regressions
are estimated. In order to test how agency costs influence excess cash
holdings, three distinct models are utilized. The first is set up to prove
that firms do have cash targets. The second determines the level of these
cash targets. Deviations from these cash targets are defined as excess
cash. In the third model, excess cash holdings are then explained by the
three drivers of agency costs.
Results: The study finds that agency costs do exist and significantly influence a
firm’s cash holding decision. Threat of takeovers, corporate governance
quality, and bank power are shown to be jointly significant. With an
increase of these variables agency costs decline and so does excess
cash.},
  author       = {Neufert, Simon},
  keyword      = {Keywords: agency costs,cash holdings,excess cash,Germany,technology industry,bank power,TecDax},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Impact of Agency Costs on Corporate Cash Holdings. A Study of German Public and Private Tech Companies},
  year         = {2016},
}