Corporate Cash Holdings and their Implications on Firm Value in Family and Founder Firms

Corporate Ownership and Control, Vol. 9, No. 4, pp. 309-326, 2012.

40 Pages Posted: 7 Feb 2012 Last revised: 1 Mar 2014

See all articles by James Lau

James Lau

Macquarie University; Macquarie University, Macquarie Business School

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Date Written: February 6, 2012

Abstract

This research investigates whether the presence of controlling founders and families has significant impact on the level of cash holdings, and their implications on firm value. The agency cost of cash holdings in founder firms is arguably less severe than family firms, due to founders’ economic incentives, strong psychological commitment and superior knowledge, whereas family firms are exposed to adverse selection and moral hazard as a result of altruism. Results indicate that founder firms hold a significantly higher level of cash holdings than family firms. In addition, there is a positive interaction effect between founder management and cash holdings on firm value, suggesting the presence of founders as managers helps to mitigate the agency costs of cash holdings.

Keywords: corporate cash holdings, founder firms, family firms, agency theory

JEL Classification: G30, G32, M13

Suggested Citation

Lau, James and Block, Jorn Hendrich, Corporate Cash Holdings and their Implications on Firm Value in Family and Founder Firms (February 6, 2012). Corporate Ownership and Control, Vol. 9, No. 4, pp. 309-326, 2012.. Available at SSRN: https://ssrn.com/abstract=2000175 or http://dx.doi.org/10.2139/ssrn.2000175

James Lau

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Jorn Hendrich Block (Contact Author)

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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