Creditor rights and corporate cash holdings: International evidence

• Creditor rights and the level of corporate cash holdings have a positive relation.
• This positive relation is weakened in countries with strong investor protection.
• High cash holdings motivated by creditor rights destroy firm value.
• Such negative effect is mitigated in countries with strong investor protection.
• Investors worry about the motives of holding cash when creditor rights are strong.

In this cross-country analysis, we find evidence of a positive relation between creditor rights and the level of corporate cash holdings. In addition, we find that the excess cash motivated by creditor rights has a significant negative impact on firm value. These relationships, however, are mitigated in countries that have stronger investor protection. The results are consistent with the interpretation that investors have concerns regarding the motives of holding cash when creditor rights are strong.