Competition Laws and Corporate Cash Policy: International Evidence

This article examines the association between the stringency of competition laws and corporate cash holdings using a database of competition laws across 49 countries. I find that the stringency of competition laws leads to a significant increase in corporate cash holdings. The effect is amplified for financially constrained firms, firms with lower information quality, firms in concentrated industries, and firms in countries with weaker institutional environments. In an additional analysis, I find that firms are more likely to spend cash to increase investment rather than pay excess cash to investors under intense competition. Finally, I show that intensifying competition increase the value of cash to shareholders and decrease the value of dividends to shareholders. Collectively, this paper provides evidence on competition laws as a global driver of corporate cash holdings and, more generally, highlights the strategic role of cash in competition.