Corporate Ownership Structure and Cash Holding in Family Controlled Firms: Evidence from the NTS Reform in China

53 Pages Posted: 16 Feb 2014

See all articles by Qigui Liu

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University

Tianpei Luo

University of Wollongong - School of Accounting, Economics & Finance

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: January 31, 2014

Abstract

This study examines the effect of excess control rights on cash holding policy of Chinese family controlled firms. We find that excess control rights are positively associated to firms’ cash holding of family controlled firms and that the high cash holding are tunnelled by controlling families other than be invested or paid to shareholders. In addition, the high cash holding and tunnelling in family controlled firms are reduced after the NTS reform. We further show that the corporate governance mechanism in family controlled firms cannot properly reduce the tunnelling from controlling families because the second large shareholders actually collude with controlling family and controlling families increase their tunnelling through board control. Finally high cash holdings in family controlled firms with excess control rights are found to have a negative marginal effect on firm value. Overall, we argue that family control is harmful to firm value, while the weak corporate governance make the situation worse and proper reform in the capital market that aims to align the interest between controlling and minority shareholders helps to alleviate the issue.

Keywords: Cash holdings, Family controlled firms, Excess control rights, NTS reform

Suggested Citation

Liu, Qigui and Luo, Tianpei and Tian, Gary Gang, Corporate Ownership Structure and Cash Holding in Family Controlled Firms: Evidence from the NTS Reform in China (January 31, 2014). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2396370 or http://dx.doi.org/10.2139/ssrn.2396370

Qigui Liu (Contact Author)

Department of Finance and Accounting, School of Management, Zhejiang University ( email )

Hangzhou, Zhejiang Province 310058
China

Tianpei Luo

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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