Corporate Cash Holdings and their Implications on Firm Value in Family and Founder Firms

2012 ◽  
Author(s):  
James Lau ◽  
Joern Hendrich Block
Keyword(s):  
Firm Value ◽  
Cash Holdings ◽  
Corporate Cash Holdings

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 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.

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.

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

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.

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