The impact of boards of directors’ characteristics on cash holdings in uncertain times

This study examines the relationship between the board of directors and cash holdings before and during the global financial crisis. We focus on the main demographic characteristics of the board: CEO duality, independent directors, and board size. Employing a sample of listed Italian industrial firms over the period 2003–2013, our empirical findings show the different behaviors of the members of the board of directors in determining cash holdings in normal conditions and during a crisis. In normal periods, in line with agency theory, a vigilant board—characterized by a high proportion of independent directors—reduces cash holdings. Diversely, the presence of CEO duality and larger boards increase cash holdings. In times of crisis, members of the board of directors abandon their monitoring duties or opportunistic behavior and become more participative to help the firm to survive. The results suggest that the effects of the board of directors’ characteristics are contingent on a firm’s external environment.