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Family control and corporate cash holdings: Evidence from China

Liu, Qigui, Luo, Tianpei and Tian, Gary Gang 2015, Family control and corporate cash holdings: Evidence from China, Journal of corporate finance, vol. 31, pp. 220-245, doi: 10.1016/j.jcorpfin.2015.02.007.

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Title Family control and corporate cash holdings: Evidence from China
Author(s) Liu, Qigui
Luo, Tianpei
Tian, Gary Gang
Journal name Journal of corporate finance
Volume number 31
Start page 220
End page 245
Total pages 26
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2015
ISSN 0929-1199
Keyword(s) Cash holdings
Family firms
Excess control rights
Family succession
Summary This study examines the effect of family control on the cash holding policy in China. We find that family firms with excess control rights tend to have high cash holdings that are tunneled rather than being invested or paid to shareholders. We further show that the incentive for controlling families to hold cash and for tunneling is exacerbated by the agency conflict between controlling and minority shareholders, i.e., it is weakened after the Chinese Non-tradable share (NTS) reform and strengthened by the presence of multiple large shareholders who probably play no monitoring role in Chinese family firms. Furthermore, family firms’ incentive to hold cash for tunneling is influenced by the unique characteristics of Chinese firms in the following ways: the incentive is stronger when the family founder has one child and face family succession problem, and when the founder has political connections and directly involves in firm’s management; while it is weakened by family founder’s social interpersonal trust with other entrepreneurs through their membership of Chambers of Commerce. Overall, we argue that family firms in China tend to hold high levels of cash for tunneling, which harms firm value, while the severe controlling-minority shareholder agency conflicts and unique Chinese family characteristics only make this situation worse.
Language eng
DOI 10.1016/j.jcorpfin.2015.02.007
Field of Research 150201 Finance
Socio Economic Objective 900101 Finance Services
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30078263

Document type: Journal Article
Collection: Department of Finance
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