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Family control, pyramidal ownership and investment-cash flow sensitivity: evidence from an emerging economy

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  • Aquiles Kalatzis
  • Aline Pellicani, Dante Mendes Aldrighi

Abstract

We investigate the effect of pyramidal ownership and family control in investment-cash flow sensitivity of Brazilian firms using financial constraint indexes to a priori classify firms. For constrained firms, we find that family control does not directly influence the investment-cash flow sensitivity, while for unconstrained firms, Family control shows a negative effect in investment decisions. However, the active involvement of the controlling family in the board increases investment-cash flow of unconstrained firms, possibly aggravating agency problems. Regarding the pyramidal ownership, we provide evidences consistent with the idea of internal transfer of funds among firms belonged to the arrangement structure.

Suggested Citation

  • Aquiles Kalatzis & Aline Pellicani, Dante Mendes Aldrighi, 2019. "Family control, pyramidal ownership and investment-cash flow sensitivity: evidence from an emerging economy," Working Papers, Department of Economics 2019_12, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon12
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    References listed on IDEAS

    as
    1. Kalatzis, Aquiles Elie Guimarães & Azzoni, Carlos Roberto, 2009. "Investment decisions in troubled times: A Bayesian approach applied to Brazilian firms," International Journal of Production Economics, Elsevier, vol. 120(2), pages 595-606, August.
    2. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
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    More about this item

    Keywords

    pyramid; family control; investment-cash flow sensitivity; financial constraint.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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