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Cash holding and control-oriented finance

Listed author(s):
  • Anderson, Ronald W.
  • Hamadi, Malika
Registered author(s):

    We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms' owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0929119916301705
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    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 41 (2016)
    Issue (Month): C ()
    Pages: 410-425

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    Handle: RePEc:eee:corfin:v:41:y:2016:i:c:p:410-425
    DOI: 10.1016/j.jcorpfin.2016.10.009
    Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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