Managerial ownership effects on cash holdings of private family firms

Abstract

This paper focuses on the effect of managerial ownership on cash holdings in a sample of private family firms. Our results suggest that managerial ownership has a significant impact on cash holdings. Cash holdings are largest in the firms with no managerial ownership and lowest in the firms in which ownership and management fully coincide. We also find weaker evidence on a nonlinear effect on cash holdings at intermediate levels of managerial stock holdings. Our results further imply that an increase in firm size decreases the level of cash holdings and that an increase in profitability increases the level of cash holdings. Our results on the dynamic nature of cash holdings are twofold. On one hand, for the total sample we find that the firms have a target level of cash holdings and that they adjust to this level. Contrary to these results, we find no indication of a target level of cash holdings when we run the model in our sample of fully family held firms.