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Journal of Management and Governance
Erschienen in: Journal of Management and Governance 1/2018

04.05.2017

Ownership structure and investment-cash flow sensitivity

verfasst von: Imen Derouiche, Majdi Hassan, Sarra Amdouni

Erschienen in: Journal of Management and Governance | Ausgabe 1/2018

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Abstract

This study investigates the effect of ownership structure on the use of cash flow in financing corporate investments—the investment-cash flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-cash flow sensitivity decreases with the cash-flow rights of the controlling shareholder and increases with the separation of its cash-flow and control rights (excess control rights). Firms are, thus, less likely to use cash flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.
Vorheriger Artikel Governance and performance of MFIs: the Cameroon case
Nächster Artikel Product market competition and analyst following

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Fußnoten
1
The most important market imperfections are agency problems, transaction costs, tax advantages, default costs, and information asymmetry.
 
2
In concentrated ownership firms, managerial discretion may be equivalent to the discretion of controlling shareholders. Indeed, these shareholders often hold executive positions or have notable influence on management (through, for example, appointing family members to key management positions or on corporate boards).
 
3
We cite Hadlock (1998) in the US, Pawlina and Renneboog (2005) and Goergen and Renneboog (2001) in the UK.
 
4
Notably, Ağca and Mozumdar (2008) examine market imperfections as reflected in some indicators namely cash flow, institutional ownership and analyst following levels as well as the existence of antitakeover amendments and of bond rating.
 
5
The authors draw from the microstructure literature to obtain three measures of information asymmetry, which are relative effective spread, price impact of a trade and probability of informed trading.
 
6
Holmen and Högfeldt (2009) also evoke crony capitalism argument. They notably assume that overinvestment is associated with non-pecuniary private benefits for the controlling families, mainly in terms of political support and influence. Hence, despite its economic inefficiencies implication, the use of leverage control devices, i.e., pyramid structures and dual class shares, is supported by government officials to the extent that higher (over)investment leads to more employment stability. This often leads wealthy controlling families to lobby government agencies so as to influence public policy.
 
7
AMF (Autorité des marchés financiers) is the French equivalent to the Security and Exchange Commission (SEC).
 
8
The use of the 20% control threshold yields qualitatively similar results.
 
9
Our model is in the spirit of Wei and Zhang (2008). Adding ownership variables (Cash-flow rights and Excess control) in the model does not qualitatively change our results.
 
10
Following prior studies on investment-cash flow sensitivity, we focus on investment in fixed assets and we do not account for other investments such as R&D and inventory which are often subject to much higher uncertainty and for which data are not available for most firms.
 
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Metadaten
Titel
Ownership structure and investment-cash flow sensitivity
verfasst von
Imen Derouiche
Majdi Hassan
Sarra Amdouni
Publikationsdatum
04.05.2017
Verlag
Springer US
Erschienen in
Journal of Management and Governance / Ausgabe 1/2018
Print ISSN: 1385-3457
Elektronische ISSN: 1572-963X
DOI
https://doi.org/10.1007/s10997-017-9380-x

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