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Socioemotional wealth and cash flow sensitivity of cash: Evidence from India

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Listed:
  • Chada, Swechha
  • Saravanan, Palanisamy
  • Varadharajan, Gopal

Abstract

This paper examines the controlling shareholders’ propensity to increase Cash flow sensitivity of cash in Indian firms. We hypothesize that the controlling shareholders’ tendency to preserve the socioemotional wealth increases cash flow sensitivity of cash in the Indian firms. Using a sample of Indian firms during 2001–2019, we find that controlling shareholders increase the cash flow sensitivity of cash. Controlling shareholders increase cash flow sensitivity of cash to avoid accessing any form of external capital that may threaten the dispersion of their socio-emotional wealth or increase oversight. We further find that this relationship is stronger in the non-business group affiliates. We observe that the socioemotional wealth of the controlling shareholders takes precedence even in the presence of access to lower cost of capital. Preliminary analyses also observe the means through which controlling shareholders preserve wealth in Indian firms. The results are robust to alternate measures of socioemotional wealth of the controlling shareholders and endogeneity concerns.

Suggested Citation

  • Chada, Swechha & Saravanan, Palanisamy & Varadharajan, Gopal, 2024. "Socioemotional wealth and cash flow sensitivity of cash: Evidence from India," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    • Handle: RePEc:eee:ecofin:v:69:y:2024:i:pa:s1062940823001468
    DOI: 10.1016/j.najef.2023.102023
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    More about this item

    Keywords

    Cash Flow Sensitivity of Cash; Controlling Shareholder Ownership; Socioemotional Wealth; Business Groups; Financial constraints;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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

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