The literature suggests the presence of tradeoffs associated with increasing level of cash, modeling an inverted u-shape relationship between cash holdings and firm value. We nuance this further arguing that the nature of these tradeoffs depends on nature of corporate governance arrangements within a firm. Using panel data from 195 Italian listed firms (2003-2015), we find that family ownership moderates the inverted u-shape relationship between cash holdings and firm value. More specifically, family firms derive more value and incur less costs when increasing cash holdings comparing with nonfamily firms. We further show that similar moderating effect can be achieved by nonfamily firms in the presence of particular board governance arrangements – smaller, more independent boards characterized by separation between CEO and chairman positions. In nonfamily firms, greater board independence contributes to the reduction of family opportunism, allowing firms to derive greater benefits from higher levels of cash holdings. Our study contributes to the research on how ownership and board governance jointly influence firm strategic decisions.

Is Cash Always King? The Role of Family Ownership and Board Structure / Cambrea, Domenico Rocco; Ponomareva, Yuliya; Pittino, Daniel. - (2019). (Intervento presentato al convegno Feeding the fire of entrepreneurship: Theory and practice for the enterprising family tenutosi a Bergamo nel 17/06/2019-21/06/2019).

Is Cash Always King? The Role of Family Ownership and Board Structure

Cambrea, Domenico Rocco;
2019

Abstract

The literature suggests the presence of tradeoffs associated with increasing level of cash, modeling an inverted u-shape relationship between cash holdings and firm value. We nuance this further arguing that the nature of these tradeoffs depends on nature of corporate governance arrangements within a firm. Using panel data from 195 Italian listed firms (2003-2015), we find that family ownership moderates the inverted u-shape relationship between cash holdings and firm value. More specifically, family firms derive more value and incur less costs when increasing cash holdings comparing with nonfamily firms. We further show that similar moderating effect can be achieved by nonfamily firms in the presence of particular board governance arrangements – smaller, more independent boards characterized by separation between CEO and chairman positions. In nonfamily firms, greater board independence contributes to the reduction of family opportunism, allowing firms to derive greater benefits from higher levels of cash holdings. Our study contributes to the research on how ownership and board governance jointly influence firm strategic decisions.
2019
Feeding the fire of entrepreneurship: Theory and practice for the enterprising family
Bergamo
17/06/2019-21/06/2019
Cambrea, Domenico Rocco; Ponomareva, Yuliya; Pittino, Daniel
Is Cash Always King? The Role of Family Ownership and Board Structure / Cambrea, Domenico Rocco; Ponomareva, Yuliya; Pittino, Daniel. - (2019). (Intervento presentato al convegno Feeding the fire of entrepreneurship: Theory and practice for the enterprising family tenutosi a Bergamo nel 17/06/2019-21/06/2019).
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1297310
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