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Cash holding and control-oriented finance

Anderson, Ronald W. and Hamadi, Malika (2016) Cash holding and control-oriented finance. Journal of Corporate Finance, 41. pp. 410-425. ISSN 0929-1199

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Identification Number: 10.1016/j.jcorpfin.2016.10.009

Abstract

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.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-corpor...
Additional Information: © 2016 Elsevier B.V.
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 23 Nov 2016 15:54
Last Modified: 25 Sep 2017 15:07
URI: http://eprints.lse.ac.uk/id/eprint/68339

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