Cash holdings decision‐making in Spanish family firms: Exploring the impact of heterogeneity

Cash holding decision‐making is one of the main corporate challenges for family firms (FFs), with significant consequences for their growth and survival. It is closely connected to key financial decisions such as financing, investments, and dividends. The motivations behind adjusting cash holdings vary, encompassing precautionary, risk avoidance, opportunity cost considerations, and the spending hypothesis. In our study, we aim to integrate specific motivations for cash holding decisions that stem from the influence of family dynamics within these businesses since FFs have unique characteristics, which affect their financial choices. Therefore, we analyze the impact of family involvement in management and the generational stage of FFs on their level of cash holdings. The results of the partial least squares–structural equation modeling, which was estimated on a sample of 7269 unlisted Spanish FFs, show that the higher the level of family involvement in management, as well as the higher the generational stage, the higher the level of cash holdings, with this having a positive effect on the firm's performance. In addition, we find that the positive relationship between family involvement in management and the level of cash holdings is strengthened by family ownership and weakened by family governance. These findings are relevant for a better understanding of the complexity of cash holding decision‐making in FFs and have practical implications not only for the FFs themselves but also for the entities related to them due to the important links between a firm's liquidity and its risk of default and performance.