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Insider Ownership, Subsidiary Cash Holdings, and Economic Consequences: Evidence from Listed Chinese Companies

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  • Huili Zhang
  • Zhengfei Lu
  • Ran Zhang
  • Guohua Jiang

Abstract

Using a large sample of listed Chinese companies, we investigate how the equity ownership of business group insiders affects subsidiary cash holdings. We find that ownership by the largest shareholders and senior managers in the listed parent firm is negatively related to its subsidiaries’ cash holdings, whereas there is a positive relationship with minority equity in subsidiaries. We also find that the market places a more significant value discount on listed firms whose cash holdings are more located in the affiliated subsidiaries. Our evidence demonstrates how cash policy inside business groups is influenced by insider ownership, and it reveals to what extent cash allocated in subsidiaries may suffer from losses in efficiency.

Suggested Citation

  • Huili Zhang & Zhengfei Lu & Ran Zhang & Guohua Jiang, 2015. "Insider Ownership, Subsidiary Cash Holdings, and Economic Consequences: Evidence from Listed Chinese Companies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S1), pages 174-195, January.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s1:p:s174-s195
    DOI: 10.1080/1540496X.2014.998891
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    Cited by:

    1. Lin, Tsui-Jung & Chang, Hai-Yen & Yu, Hui-Fun & Kao, Ching-Pao, 2019. "The impact of political connections and business groups on cash holdings: Evidence from Chinese listed firms," Global Finance Journal, Elsevier, vol. 40(C), pages 65-73.
    2. Lee, Chien-Chiang & Wang, Chih-Wei, 2021. "Firms' cash reserve, financial constraint, and geopolitical risk," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    3. Rumeng Cui & Zhong Ma & Longfeng Wang, 2022. "Allocation of Decision Rights and CSR Disclosure: Evidence from Listed Business Groups in China," Sustainability, MDPI, vol. 14(7), pages 1-20, March.
    4. Lou, Zhukun & Zhu, Mingyang, 2021. "Decision rights allocation and innovation: Evidence from China's listed business groups," Finance Research Letters, Elsevier, vol. 39(C).

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