We investigate how institutional ownership affects the value of corporate cash holdings. Using 13F filing data in the US, we find that the value of cash holdings is higher for firms with high institutional ownership. To address endogeneity problems, we employ a discontinuity in institutional ownership around Russell 1000/2000 index reconstitutions and our findings are robust to the composition of the Russell indexes. The valuation premium of institutional ownership for cash holdings remains significant after controlling for the types of institutional ownership. Moreover, the transient type of institutional ownership has the highest value of corporate cash holdings among the different types.

JEL classification: G23, G31, G32, G34
Keywords: institutional ownership, cash holdings, corporate governance, investment opportunity, financial constraints​