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<p>This study investigates how national culture shapes the effectiveness of corporate governance in controlling agency costs associated with cash holdings. Using data from 4675 firms in 42 countries over 2003–2023 (34,293 firm-year observations), we analyze how the cultural dimension of ‘tightness-looseness’ influences the relationship between corporate governance and cash holdings. Our findings support the flexibility hypothesis where opportunistic managers keep more than optimal cash levels. We show that strong governance reduces excess cash reserves, but its effectiveness varies by cultural context. Governance controls agency costs more effectively in tight cultures, but less effectively in loose ones. This study highlights the importance of culture-sensitive governance policies in global corporate finance.</p>

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Cultural tightness, cash holdings and agency costs

  • 期刊论文

  • 发表日期：

    2026年3月26日

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  • Ahmed Al Mubarak,
  • Evangelos Giouvris

摘要

This study investigates how national culture shapes the effectiveness of corporate governance in controlling agency costs associated with cash holdings. Using data from 4675 firms in 42 countries over 2003–2023 (34,293 firm-year observations), we analyze how the cultural dimension of ‘tightness-looseness’ influences the relationship between corporate governance and cash holdings. Our findings support the flexibility hypothesis where opportunistic managers keep more than optimal cash levels. We show that strong governance reduces excess cash reserves, but its effectiveness varies by cultural context. Governance controls agency costs more effectively in tight cultures, but less effectively in loose ones. This study highlights the importance of culture-sensitive governance policies in global corporate finance.