Journal
PACIFIC-BASIN FINANCE JOURNAL
Volume 83, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.pacfin.2023.102204
Keywords
Cash holdings; Employee relation; Wage inequality
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This study examines the relationship between wage differential and corporate cash holdings using novel data from Taiwan. The research finds that employee wages positively affect cash holdings, mainly due to the precautionary motive, while manager wages have a relatively weak effect but only under high agency motive. The study identifies these motives through factors such as employee turnover rate, female worker coverage ratio, and financial constraints. Revisions in labor standards and accounting laws help address endogeneity. Additionally, firms are more likely to save cash for employees from internal cash flows when employee wages increase, and firms with higher manager wages prefer debt financing.
We use novel data for Taiwan to examine the relationship between wage differential and corporate cash holdings. The two main forces behind wage expenses, manager and employee wages, play different roles in this relationship. We find that employee wages positively affect cash holdings, and their effect mainly results from the precautionary motive. Manager wages have a relatively weak effect on cash holdings, but their effect is only visible when the agency motive is high. We identify these motives through the heterogeneity of employee turnover rate, female worker coverage ratio, and financial constraints. Important revisions in the Labor Standards Act and Business Entity Accounting Act help address endogeneity. We also find that firms are likely to save cash from internal cash flows when employee wages increase, while firms with higher manager wages prefer debt financing. By decomposing wage expenses, we show that firms are likely to save cash for employees from firm's pockets.
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