Corporate cash holdings and their implications on firm value in family and founder firms

James Lau, Joern H. Block

Research output: Contribution to journalArticle

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.
Original languageEnglish
Pages (from-to)309-326
Number of pages18
JournalCorporate Ownership and Control
Volume9
Issue number4
Publication statusPublished - 2012
Externally publishedYes

Keywords

  • Corporate Cash Holdings
  • Founder Firms
  • Family Firms
  • Agency Theory

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