Ownership structure and investment-cash flow sensitivity
Imen Derouiche (),
Majdi Hassan and
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Imen Derouiche: University of Luxembourg
Majdi Hassan: ESSEC Tunis
Sarra Amdouni: ESSEC Tunis
Journal of Management & Governance, 2018, vol. 22, issue 1, 31-54
Abstract This study investigates the effect of ownership structure on the use of cash flow in financing corporate investments—the investment-cash flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-cash flow sensitivity decreases with the cash-flow rights of the controlling shareholder and increases with the separation of its cash-flow and control rights (excess control rights). Firms are, thus, less likely to use cash flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.
Keywords: Ownership structure; Excess control rights; Investment-cash flow sensitivity (search for similar items in EconPapers)
JEL-codes: G32 G34 M41 (search for similar items in EconPapers)
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