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Large powerful shareholders and cash holding

  • Ronald W. Anderson
  • Malika Hamadi
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    We study the relationship between liquid asset holding and the pattern of share ownership and control structures within the firm. We explore these issues using a data set of Belgian firms that is particularly well suited to studying the institutions of control oriented finance. The data include information on ownership concentration, voting alliances, managerial ownership, membership in family groups, institutional cross-share holdings, and coordination centers which under Belgian law permit consolidation of earnings and cash flow for a group of firms. We show that financial structures in Belgium are strongly control oriented as evidenced by the very high levels of observed ownership concentration and the prevalence of pyramids, voting alliances, and participation infamily groups. We find that the level of liquid asset holding is positively associated with ownership concentration and that this effect is particularly marked for family firms. Given the diffculties of family firms in achieving effective wealth diversification we interpret these results as indicating liquid asset holding is largely motivated by risk aversion. Cash holding is negatively associated with institutional cross share holdings, suggesting that these cross holdings facilitate an effective internal capital market. We find little evidence that managers have an independent influence on cash holdings.

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    File URL: http://eprints.lse.ac.uk/24422/
    File Function: Open access version.
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24422.

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    Length: 27 pages
    Date of creation: 17 Apr 2009
    Date of revision:
    Handle: RePEc:ehl:lserod:24422
    Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
    Phone: +44 (020) 7405 7686
    Web page: http://www.lse.ac.uk/

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