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Corporate cash and the Firm's life-cycle: Evidence from dual-class firms

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  • Lin, James Juichia
  • Shi, Wei-Zhong
  • Tsai, Li-Fang
  • Yu, Min-Teh

Abstract

This research explores whether a dual-class ownership structure affects a firm's propensity to stockpile cash reserves over the life cycle stages. Using a sample of U.S. dual-class firms, evidence shows that the cash holdings of dual-class firms are significantly lower than that of single-class firms by 2.42%. The dual-class firms that exploit external debt financing deploy more cash for acquisition activities. More importantly, dual-class firms decrease their cash holdings by only 2.8% when growing from young to mature, while single-class firms decrease that by 5.88%. During the mature stage, the dual-class firms experience a larger fall in operating net cash flow, cash acquisition expenditure, and debt financing than do single-class firms. These findings, however, are only significant for firms with high information asymmetry. Our evidence of changes in cash holdings shows that agency costs associated with dual-class ownership increase over the life cycle.

Suggested Citation

  • Lin, James Juichia & Shi, Wei-Zhong & Tsai, Li-Fang & Yu, Min-Teh, 2022. "Corporate cash and the Firm's life-cycle: Evidence from dual-class firms," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 27-48.
    • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:27-48
    DOI: 10.1016/j.iref.2022.02.006
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    More about this item

    Keywords

    Dual-class ownership; Cash holdings; Life cycle; Voting rights; Agency cost;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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