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Ownership, Control and Liquidity

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  • Ronald Anderson
  • Malika Hamadi

    ()
    (Luxembourg School of Finance, University of Luxembourg)

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    Abstract

    In this paper we study the ways in which the firm's choice of liquid assets is affected by the pattern of share ownership and by the control structures within the firm. We distinguish between three separate ways in which these relationships can affect liquid- ity. First, ownership concentration may be associated with risk aversion which leads the firm to hold greater amounts of liquidity. Second, greater power for insiders will lead the firm to hold more liquid assets as these may be more readily transformed in ways that are advantageous to insiders. Third, firms with close association to an industrial group reinforced through cross share holding will tend to hold fewer liquid assets than will a firm without such relationships. We explore these explanations using a data set of Belgian firms that is particularly well suited to studying the institutions of control oriented finance. The data includes information on ownership concentration, managerial ownership, voting alliances, membership in family groups, association with holding companies, associations with coordination centers, and institutional cross-share holdings. Our results provide support for all three of the effects identified above. The effects of risk aversion and the industrial cross share holding appear to be statistically and economically most significant.

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    Bibliographic Info

    Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 07-08.

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    Date of creation: 2007
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    Handle: RePEc:crf:wpaper:07-08

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    Related research

    Keywords: Liquid assets; Corporate governance; Family Firms.;

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    References

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    2. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 335-359, September.
    3. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," CRSP working papers 339, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    6. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
    7. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc.
    8. Andrei Shleifer & Fausto Panunzi & Mike Burkart, 2002. "Family firms," LSE Research Online Documents on Economics 24926, London School of Economics and Political Science, LSE Library.
      • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October.
    9. Anderson, Ronald W & Carverhill, Andrew, 2005. "A Model of Corporate Liquidity," CEPR Discussion Papers 4994, C.E.P.R. Discussion Papers.
    10. GAUTIER, Axel & HAMADI, Malika, 2004. "Internal capital market efficiency of Belgian holding companies," CORE Discussion Papers 2004086, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    11. David Sraer & David Thesmar, 2007. "Performance and Behavior of Family Firms: Evidence from the French Stock Market," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 709-751, 06.
    12. Becht, Marco & Roell, Ailsa, 1999. "Blockholdings in Europe:: An international comparison1," European Economic Review, Elsevier, vol. 43(4-6), pages 1049-1056, April.
    13. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
    14. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
    15. Maury, Benjamin, 2006. "Family ownership and firm performance: Empirical evidence from Western European corporations," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 321-341, January.
    16. Zwiebel, Jeffrey, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Wiley Blackwell, vol. 62(2), pages 161-85, April.
    17. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    18. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    19. Andrew Carverhill & Ron Anderson, 2005. "A Model of Corporate Liquidity," FMG Discussion Papers dp529, Financial Markets Group.
    20. Tim Opler & Lee Pinkowitz & Rene Stulz & Rohan Williamson, 1997. "The Determinants and Implications of Corporate Cash Holdings," NBER Working Papers 6234, National Bureau of Economic Research, Inc.
    21. Randall K. Morck & David A. Strangeland & Bernard Yeung, 1998. "Inherited Wealth, Corporate Control and Economic Growth," William Davidson Institute Working Papers Series 209, William Davidson Institute at the University of Michigan.
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