Premium
Cash holdings in family firms: CEO identity and implications for firm value
Author(s) -
Caprio Lorenzo,
Del Giudice Alfonso,
Signori Andrea
Publication year - 2020
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12233
Subject(s) - business , enterprise value , cash , value (mathematics) , risk aversion (psychology) , monetary economics , agency (philosophy) , marginal value , agency cost , information asymmetry , economics , finance , microeconomics , financial economics , corporate governance , expected utility hypothesis , philosophy , epistemology , machine learning , computer science , shareholder
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.