Corporate cash holdings and their implications on firm value in family and founder firms

2012 ◽  
Vol 9 (2) ◽  
pp. 257-273 ◽  
Author(s):  
James Lau ◽  
Joern H. Block
Keyword(s):  
Adverse Selection ◽  
Interaction Effect ◽  
Firm Value ◽  
Family Firms ◽  
Cash Holdings ◽  
Agency Cost ◽  
Economic Incentives ◽  
Positive Interaction ◽  
Superior Knowledge ◽  
Corporate Cash Holdings

This research investigates whether the presence of controlling founders and families has significant impact on the level of cash holdings, and their implications on firm value. The agency cost of cash holdings in founder firms is arguably less severe than family firms, due to founders’ economic incentives, strong psychological commitment and superior knowledge, whereas family firms are exposed to adverse selection and moral hazard as a result of altruism. Results indicate that founder firms hold a significantly higher level of cash holdings than family firms. In addition, there is a positive interaction effect between founder management and cash holdings on firm value, suggesting the presence of founders as managers helps to mitigate the agency costs of cash holdings.

scholarly journals Family Control And The Value Of Cash Holdings

2015 ◽  
Vol 31 (2) ◽  
pp. 647 ◽  
Author(s):  
Sabri Boubaker ◽  
Imen Derouiche ◽  
Majdi Hassen
Keyword(s):  
Firm Value ◽  
Family Firms ◽  
Cash Holdings ◽  
Firm Resources ◽  
Family Control ◽  
Large Sample ◽  
Listed Firms ◽  
Excess Cash ◽  
Cash Reserves ◽  
Corporate Cash Holdings

The present study investigates the effects of family control on the value of corporate cash holdings. Using a large sample of French listed firms, the results show that the value of excess cash reserves is lower in family firms than in other firms, reflecting investors concern about the potential misuse of cash by controlling families. We also find that the value of excess cash is lower when controlling families are involved in management and when they maintain a grip on control, indicating that investors do not expect the efficient use of cash in these firms. Our findings are consistent with the argument that the extent to which excess cash contributes to firm value is lower when dominant shareholders are likely to expropriate firm resources. Overall, family control seems to be a key determinant of cash valuation when ownership is concentrated.

Family control, agency conflicts, corporate cash holdings and firm value

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ruchi Moolchandani ◽  
Sujata Kar
Keyword(s):  
Firm Value ◽  
Family Firms ◽  
Cash Holdings ◽  
Minority Shareholders ◽  
Content Type ◽  
Family Control ◽  
Indian Family ◽  
Agency Conflict ◽  
Cash Reserves ◽  
Corporate Cash Holdings

PurposeThis paper examines whether family control exerts any influence on corporate cash holdings in Indian listed firms. It also examines how this accumulated cash of family firms impacts firm value.Design/methodology/approachThe study uses dynamic panel data regression estimated using two-step system generalized method of moments (GMM) on S&P BSE 500 firms during 2009–2018 for testing the repercussions of family control on the cash levels of a firm. Further, fixed effects regression has been employed for the valuation analysis.FindingsEstimation results showed that family control negatively impacts cash holdings in Indian firms. Further, the cash accumulation by family firms adversely affects the market valuation of the firm. These findings signal a principal–principal (P-P) agency conflict in Indian family firms, i.e. friction between family owners and minority shareholders' interests. Minority shareholders fear that a part of the cash reserves will be used by family members for personal benefits. Thus, they discount cash reserves in family firms.Originality/valueThe study adds to the determinants of corporate cash holdings in emerging markets. To the best of the authors’ knowledge, this is the first study from India investigating family control as a determinant of cash policy. It sheds light on the P-P agency conflict in Indian family firms. P-P agency conflict is less researched in cash holdings literature as opposed to the principal–agent managerial disputes. Also, the study uses a more comprehensive definition of family control rather than just considering the ownership as used in prior cash holding research.

scholarly journals Corporate governance and firm valuation – the case of China

2009 ◽  
Vol 7 (2) ◽  
pp. 21-29 ◽  
Author(s):  
Ohannes George Paskelian ◽  
Stephen Bell
Keyword(s):  
Firm Value ◽  
Cash Holdings ◽  
Firm Valuation ◽  
Government Ownership ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Foreign Investors ◽  
High Government ◽  
Corporate Cash Holdings ◽  
Strong Inverse Relationship

We examine the determinants and implications of Chinese corporate cash holdings in the 1993- 2006 period. Agency theories assert that firms with a large controlling shareholder have relatively large cash holdings because of the greater ability of the controlling shareholder to extract private benefits from the cash holdings. Our findings show a very strong inverse relationship between cash holdings and firm valuation in high government ownership firms. Also, we find that in firms with high government ownership, dividend payouts are highly valued. We conclude that Chinese investors see government ownership as a factor that reduces firm value. They prefer relatively higher dividends from firms having high government ownership. Conversely, investors assign much higher value to firms with relatively low government ownership and they tend to be neutral about the dividends payouts of such firms. Also, investors value highly the presence of foreign investors in Chinese firms and tend to be neutral about dividend payouts of firms with high foreign ownership concentration.

Firm Value, Corporate Cash Holdings and Financial Constraint: A Study from a Developing Market

2016 ◽  
Vol 55 (4) ◽  
pp. 368-385 ◽  
Author(s):  
Thi Lien Hoa Nguyen ◽  
Le Ngan Trang Nguyen ◽  
Thi Phuong Vy Le
Keyword(s):  
Firm Value ◽  
Cash Holdings ◽  
Financial Constraint ◽  
Corporate Cash Holdings

scholarly journals Exploring the moderating effect of family CEO on the association between family ownership and firm value: An empirical analysis of top Indian family firms

2015 ◽  
Vol 12 (2) ◽  
pp. 349-361
Author(s):  
Lakshmi Kalyanaraman
Keyword(s):  
Family Member ◽  
Empirical Analysis ◽  
Interaction Effect ◽  
Firm Value ◽  
Family Firms ◽  
Stock Exchange ◽  
Moderating Effect ◽  
Market Valuation ◽  
Family Ownership ◽  
The Relationship

We study 288 family firms included in the NSE CNX 500 index of the National Stock Exchange of India. We find an entrenchment-alignment-entrenchment relationship between family ownership and firm value. We show that family CEO has a negative moderating effect on the relationship between family ownership and firm value. When the interaction effect of Family CEO on family ownership is controlled, only family shareholding in the alignment range is found to be statistically significant. The study shows that family firms with family CEO suffer from a decrease in market valuation. This finding is extremely valuable given the fact that India is dominated by family firms and majority of family firms appoint a family member as CEO

Cash holdings in family firms: CEO identity and implications for firm value

2019 ◽  
Vol 26 (2) ◽  
pp. 386-415 ◽  
Author(s):  
Lorenzo Caprio ◽  
Alfonso Del Giudice ◽  
Andrea Signori
Keyword(s):  
Firm Value ◽  
Family Firms ◽  
Cash Holdings

scholarly journals The Impact of Foreign Portfolio Investment and Corporate Governance on Corporate Cash Holdings: Evidence from the Leading Manufacturing Sectors in Pakistan

2020 ◽  
Vol 5 (4) ◽  
Author(s):  
Hina Gul ◽  
Sajida Gul ◽  
Shahid Rasheed
Keyword(s):  
Corporate Governance ◽  
Negative Impact ◽  
Positive Impact ◽  
Cash Holdings ◽  
Agency Cost ◽  
Portfolio Investment ◽  
Foreign Portfolio Investment ◽  
Lm Test ◽  
The Impact ◽  
Corporate Cash Holdings

Corporate governance plays a significant role in determining cash holdings of the corporation. The behavior of corporate manager in companies where the protection of rights of the shareholders is week leads to the problem of agency. The key aim of this study is to scrutinize the influence of foreign portfolio investment and corporate governance on corporate cash holdings. For analysis trade off theory, agency cost theory and Modern Theory of Portfolio are reviewed. The study is performed by taking 67 listed manufacturing firms in the Pakistan stock exchange for the period of 2013-2018.Chow test, Breusch-Pagan Lagrange Multiplier (LM) Test and Hausman specification test performed for data analysis. The results showed that FPI inflow has a significant and negative impact on cash holdings. In terms of corporate governance ownership concentration has a significant and negative impact on the cash holdings while board size significant and positive impact and board independence has an insignificant and positive impact on the cash holdings. This study concluded that corporate governance practices must be improved and made effective in such a way so as to attract and retain investment and also protect the shareholders rights and managers must perform in the best concern of the shareholders by investing cash in healthy projects to minimize the agency conflict.

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