This study investigates how family control affects the investment-cash flow sensitivity, applying a fixed effects regression model on a panel data of 600 French, German and Italian non-financial listed firms in the period 2007-2015. In order to test the effects of agency costs and asymmetric information on corporate capital expenditure decisions and, consequently, to distinguish between overinvestment and underinvestment problems, the firms have been differentiated between low and high growth opportunities, using the Tobin’s Q as a proxy. The empirical results show that, overall, family firms’ investments are less sensitive to internally generated cash flow, a signal of a more efficient investment behavior compared to non-family firms. In particular, the findings suggest that the main difference between family and non-family firms arises in presence of high growth opportunities: family firms moderate the asymmetric information between managers, shareholders and bondholders, allowing the firm to mitigate the underinvestment problem.
The role of family control and growth opportunity in affecting the investment-cash flow sensitivity
Cambrea, Domenico Rocco
;Quarato, Fabio
2017
Abstract
This study investigates how family control affects the investment-cash flow sensitivity, applying a fixed effects regression model on a panel data of 600 French, German and Italian non-financial listed firms in the period 2007-2015. In order to test the effects of agency costs and asymmetric information on corporate capital expenditure decisions and, consequently, to distinguish between overinvestment and underinvestment problems, the firms have been differentiated between low and high growth opportunities, using the Tobin’s Q as a proxy. The empirical results show that, overall, family firms’ investments are less sensitive to internally generated cash flow, a signal of a more efficient investment behavior compared to non-family firms. In particular, the findings suggest that the main difference between family and non-family firms arises in presence of high growth opportunities: family firms moderate the asymmetric information between managers, shareholders and bondholders, allowing the firm to mitigate the underinvestment problem.File | Dimensione | Formato | |
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