Blockholder ownership and corporate cash holdings: evidence from European firms

Purpose - This study aims to investigate the impact of ownership by large shareholders (blockholders) on corporate cash holdings. The study further investigates heterogeneity in the relationship between blockholder ownership and corporate cash holdings. Design/methodology/approach - Building on the precautionary and agency motives of corporate cash holdings, the study focuses on publicly listed firms from 22 European countries for the period from 2006 to 2015. Multiple pooled ordinary least square and fixed effects regression models are employed to examine the relationship between blockholder ownership and firms’ cash holdings. Findings - This study documents a positive relationship between blockholder ownership and corporate cash holdings which indicates the role of blockholders in influencing firms’ cash holdings policies. However, further analyses show that the effect of blockholding on cash holdings depends on the type of blockholder. While the relationship is still positive between cash holdings and ownership by strategic blockholders, it turns negative for the ownership by institutional blockholders. Research limitations/implications - This study provides evidence for the important role played by firms’ ownership structures, and especially blockholding, in shaping firms’ cash holdings decisions. The findings are therefore of great value for investors, firms’ management and board and policy makers. Originality/value - This paper contributes to the literature by providing an explanation of the contradictory results documented in the literature on the impact of blockholders on corporate cash holdings. This study, to the best of the author’s knowledge, is the first to examine the effect of blockholder ownership on cash holdings by distinguishing between different types of blockholder.