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Ownership structure and investment-cash flow sensitivity

Author

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  • Imen Derouiche

    (University of Luxembourg)

  • Majdi Hassan

    (ESSEC Tunis)

  • Sarra Amdouni

    (ESSEC Tunis)

Abstract

This study investigates the effect of ownership structure on the use of cash flow in financing corporate investments—the investment-cash flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-cash flow sensitivity decreases with the cash-flow rights of the controlling shareholder and increases with the separation of its cash-flow and control rights (excess control rights). Firms are, thus, less likely to use cash flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.

Suggested Citation

  • Imen Derouiche & Majdi Hassan & Sarra Amdouni, 2018. "Ownership structure and investment-cash flow sensitivity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(1), pages 31-54, March.
    • Handle: RePEc:kap:jmgtgv:v:22:y:2018:i:1:d:10.1007_s10997-017-9380-x
    DOI: 10.1007/s10997-017-9380-x
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    More about this item

    Keywords

    Ownership structure; Excess control rights; Investment-cash flow sensitivity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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