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Title: Cash holding and control-oriented finance
Authors: Anderson, R. W.
Hamadi, Malika
First Published: 18-Oct-2016
Publisher: Elsevier
Citation: Journal of Corporate Finance 41 (2016) 410–425
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.
DOI Link: 10.1016/j.jcorpfin.2016.10.009
ISSN: 0929-1199
Embargo on file until: 18-Apr-2018
Version: Post-print
Status: Peer-reviewed
Type: Journal Article
Rights: Creative Commons “Attribution Non-Commercial No Derivatives” licence CC BY-NC-ND, further details of which can be found via the following link: Archived with reference to SHERPA/RoMEO and publisher website.
Description: JEL classification G30; G32; G34
Appears in Collections:Published Articles, School of Management

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