Ownership, Control and Liquidity

Ronald Anderson and Malika Hamadi ()
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Malika Hamadi: Luxembourg School of Finance, University of Luxembourg

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: In this paper we study the ways in which the firm's choice of liquid assets is affected by the pattern of share ownership and by the control structures within the firm. We distinguish between three separate ways in which these relationships can affect liquid- ity. First, ownership concentration may be associated with risk aversion which leads the firm to hold greater amounts of liquidity. Second, greater power for insiders will lead the firm to hold more liquid assets as these may be more readily transformed in ways that are advantageous to insiders. Third, firms with close association to an industrial group reinforced through cross share holding will tend to hold fewer liquid assets than will a firm without such relationships. We explore these explanations using a data set of Belgian firms that is particularly well suited to studying the institutions of control oriented finance. The data includes information on ownership concentration, managerial ownership, voting alliances, membership in family groups, association with holding companies, associations with coordination centers, and institutional cross-share holdings. Our results provide support for all three of the effects identified above. The effects of risk aversion and the industrial cross share holding appear to be statistically and economically most significant.

Keywords: Liquid assets; Corporate governance; Family Firms. (search for similar items in EconPapers)
JEL-codes: C23 G32 (search for similar items in EconPapers)
Date: 2007
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