Ownership, Control and Liquidity

29 Pages Posted: 3 Mar 2007

See all articles by Ronald W. Anderson

Ronald W. Anderson

London School of Economics & Political Science - Department of Finance; Centre for Economic Policy Research (CEPR); Sun Yat-sen University (SYSU) - Xinhua College

Malika Hamadi

Surrey Business School

Date Written: December 2006

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 liquidity. 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

JEL Classification: C23, G32, G34, G31

Suggested Citation

Anderson, Ronald W. and Hamadi, Malika, Ownership, Control and Liquidity (December 2006). Available at SSRN: https://ssrn.com/abstract=968008 or http://dx.doi.org/10.2139/ssrn.968008

Ronald W. Anderson

London School of Economics & Political Science - Department of Finance ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6204 (Phone)
+44 20 7955 7420 (Fax)

HOME PAGE: http://personal.lse.ac.uk/ANDERSOR/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Sun Yat-sen University (SYSU) - Xinhua College ( email )

China

Malika Hamadi (Contact Author)

Surrey Business School

Surrey Business School
Guildford, Surrey GU2 7XH
United Kingdom

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