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Family ownership and free cash flow

Author

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  • Thitima Sitthipongpanich

Abstract

Purpose - The purpose of this paper is to investigate the effect of family ownership on investment-cash flow sensitivity and on firm performance. Design/methodology/approach - The author uses panel data to examine the relationship between investment and cash flow and between family ownership and the firm performance of Thai listed firms from 2001 to 2008. To account for the endogeneity of the lagged dependent variable, the investment equation is estimated by the generalized method of moments, following Arellano and Bond (1991). Findings - The presence of family owners reduces the sensitivity of investment and cash flow. At low and high levels of family ownership, an increase in family shareholding leads to lower investment-cash flow sensitivity. In contrast, firms with medium family ownership levels have higher investment-cash flow sensitivity. Only at high levels of family ownership is firm performance positively related to family shareholding. Originality/value - The ownership levels of family shareholders affect the investment-cash flow sensitivity in anS-shaped relation, supporting the interest alignment and entrenchment effects. When family shareholders have high ownership incentives, their interest alignment reduces the agency costs of free cash flow problems and leads to higher firm performance.

Suggested Citation

  • Thitima Sitthipongpanich, 2017. "Family ownership and free cash flow," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 13(2), pages 133-148, April.
    • Handle: RePEc:eme:ijmfpp:ijmf-06-2014-0088
    DOI: 10.1108/IJMF-06-2014-0088
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    Citations

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    Cited by:

    1. Gaurav Gupta & Jitendra Mahakud & Vivek Verma, 2020. "CEO's education and investment–cash flow sensitivity: an empirical investigation," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 17(4), pages 589-618, December.
    2. Muhammad Arif Khan & Xuezhi Qin & Khalil Jebran & Abdul Rashid, 2020. "The Sensitivity of Firms’ Investment to Uncertainty and Cash Flow: Evidence From Listed State-Owned Enterprises and Non-State-Owned Enterprises in China," SAGE Open, , vol. 10(1), pages 21582440209, January.
    3. Budsaratragoon, Pornanong & Lhaopadchan, Suntharee & Thomsen, Steen, 2020. "Community and compensation: Director remuneration in Thailand," Research in International Business and Finance, Elsevier, vol. 52(C).

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