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The Impact of Stakeholder-Centric Corporate Misconduct on Financial Policies: A Precautionary Tale
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DOI：10.1016/j.jbankfin.2025.107582.png)
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Abstract
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We investigate how stakeholder-centric corporate misconduct (CM) influences firms’ financial policies. CM is associated with higher cash holdings and lower dividend payouts and debt financing. These effects are more pronounced in firms with stronger governance. We further show that high cash holdings in CM firms are associated with higher firm value and lower implied cost of capital. Firms that replace their CEOs following CM adopt more conservative financial policies. Our evidence supports the precautionary motive for cash holdings, indicating that such reserves are unlikely to result from agency conflicts or increased managerial discretion in CM firms.
Keywords:
Corporate misconduct
Cash holdings
Dividend payout
Leverage
Cost of equity capital
Valuation
M14
G30
G34
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