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Cash holding and control-oriented finance

Anderson, R and Hamadi, Malika (2016) Cash holding and control-oriented finance Journal of Corporate Finance, 41. pp. 410-425.

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Abstract

We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
NameEmailORCID
Anderson, R
Hamadi, Malikam.hamadi@surrey.ac.uk
Date : 18 October 2016
DOI : 10.1016/j.jcorpfin.2016.10.009
Copyright Disclaimer : © 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords : Cash holding; Ownership concentration; Investor protection; Control-oriented finance; Family firms
Depositing User : Melanie Hughes
Date Deposited : 22 May 2018 09:50
Last Modified : 16 Jan 2019 19:09
URI: http://epubs.surrey.ac.uk/id/eprint/846467

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