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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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      • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
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    12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    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. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 111-133, March.
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    16. 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.
    17. Baskin, Jonathan B, 1987. "Corporate Liquidity in Games of Monopoly Power," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 312-19, May.
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    19. 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.
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