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Cash holding and control-oriented finance

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journal contribution
posted on 17.11.2016, 11:40 by R. W. Anderson, Malika Hamadi
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.

History

Citation

Journal of Corporate Finance 41 (2016) 410–425

Author affiliation

/Organisation/COLLEGE OF SOCIAL SCIENCES, ARTS AND HUMANITIES/School of Management

Version

AM (Accepted Manuscript)

Published in

Journal of Corporate Finance 41 (2016) 410–425

Publisher

Elsevier

issn

0929-1199

Acceptance date

15/10/2016

Available date

18/04/2018

Publisher version

http://www.sciencedirect.com/science/article/pii/S0929119916301705

Notes

JEL classification G30; G32; G34

Language

en