We examine whether stock liquidity exacerbates or mitigates managerial short-termism. Utilizing earnings management as a proxy for managerial short-termism, we establish three major findings. First, firms with liquid stocks engage in less accrual-based and real earnings management. Second, the effect of stock liquidity on earnings management is amplified for firms with high levels of managerial pay-for-performance sensitivity. Third, the positive association between the intensity of earnings management and firm cost of capital is evident only for firms with low stock liquidity. Our findings are consistent with the threat of blockholder exit as the main governance channel through which stock liquidity discourages opportunistic earnings management and mitigates managerial short-termism.

This paper examines whether cultural dimensions explain the variation in corporate cash holdings around the world as well as within the United States. We establish four major findings. First, in an international setting, corporate cash holdings are negatively associated with individualism and positively associated with uncertainty-avoidance. Second, individualism and uncertainty avoidance influence the precautionary motive for holding cash. Third, firms in individualistic states in the United States hold less cash than firms in collectivistic states. Fourth, we show that individualism is positively related to the firm’s capital expenditures, acquisitions, and repurchases while uncertainty avoidance is negatively related. Our findings remain unchanged after controlling for governance factors, firm attributes, and country characteristics.