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Cash holdings in family firms: CEO identity and implications for firm value

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  • Lorenzo Caprio
  • Alfonso Del Giudice
  • Andrea Signori

Abstract

We investigate the cash holdings policy of family firms and examine potential value implications. Family firms hold more cash than other firms, with an average difference of 2.3% of total assets. This result is driven by firms managed by heir CEOs. While the cash holdings policy of first‐generation family firms is more sensitive to firm risk, consistent with founders’ increased risk aversion, that of later‐generation firms is more sensitive to information asymmetry and agency conflicts. Heir CEOs’ cash policies destroy value, as the marginal value of an additional Euro suffers from a 38.3‐cent discount, on average, relative to non‐family firms.

Suggested Citation

  • Lorenzo Caprio & Alfonso Del Giudice & Andrea Signori, 2020. "Cash holdings in family firms: CEO identity and implications for firm value," European Financial Management, European Financial Management Association, vol. 26(2), pages 386-415, March.
    • Handle: RePEc:bla:eufman:v:26:y:2020:i:2:p:386-415
    DOI: 10.1111/eufm.12233
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    Cited by:

    1. Wu, Ying & Chang, Qi, 2024. "Large state-owned shareholders and cash holding: Evidence from family firms," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    2. Feimei Liao & Jiaqing Zhang & Songqin Ye, 2023. "Can Equity Incentives Restrain Defensive Behaviors in Corporate Cash Holding Decisions?," SAGE Open, , vol. 13(3), pages 21582440231, August.
    3. Lan Thi Mai Nguyen & Trang Khanh Tran & Cameron Truong, 2024. "Family ownership and speed of adjustment towards targeted capital structures: A study of ASEAN firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 445-474, March.
    4. Herdhayinta, Heyvon & Lau, James & Shen, Carl Hsin-han, 2023. "Cash holdings of minority family businesses in Indonesia," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Nilesh B. Sah & Anandi Banerjee & James Malm & Anisur Rahman, 2021. "A Good Name Is Better Than Riches: Family Firms and Working Capital Management," Discussion Paper Series 2021-02, McColl School of Business, Queens University of Charlotte.
    6. Sah, Nilesh B. & Banerjee, Anandi & Malm, James & Rahman, Anisur, 2022. "A good name is better than riches: Family firms and working capital management," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).

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