Cash holding and control-oriented finance

Ronald Anderson, Malika Hamadi

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)
166 Downloads (Pure)


We critically reassess the notion that high liquid asset holding by firms faced with weak investor protection is evidence of managerial rent extraction. We show that firms facing agency problems may establish tight controls over management through concentrated ownership. Using data on Belgian listed firms between 1991 and 2006, we find a strong positive association between ownership concentration and cash holding. This indicates a precautionary motive on the part of the controlling shareholders who highly value control. We also find that firm market valuation is positively affected by the amount of cash held by firms. On the other hand, managerial ownership has no impact. These results are consistent with the hypothesis that firms’ owners are pursuing a rational strategy to mitigate agency costs in the face of weak investor protections.
Original languageEnglish
Pages (from-to)410-425
Number of pages16
JournalJournal of Corporate Finance
Early online date18 Oct 2016
Publication statusPublished - Dec 2016


  • Cash holding
  • Ownership concentration
  • Investor protection
  • Control-oriented finance
  • Family firms


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