Investment-cash flow sensitivity in family owned Pakistani firms
Keywords:
Family firms, investment-cash flow sensitivity, control and CEO JEL classification: G31, G32
Abstract
Different governance structure of family owned firms may impact their investment decisions and hence performance in the long run. This study investigates the impact of family ownership and control on investment-cash flow sensitivity of family owned firms listed in Pakistan Stock Exchange. Using the ownership threshold of >50% share holdings, panel data of 135 firms is analyzed from 2004-2017. Generalized Method of Moments (GMM) was used to estimate the coefficients of model. Results reveal the financing decisions are significantly sensitive to the cash flows generated by the firms in a credit constraint environment. The study recommends policy makers to facilitate capital funding to family owned firms and encourage the placement of professional CEOs instead of family members.
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References
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Hadlock, C. J.1998. “Ownership, Liquidity, and Investment.” The Rand Journal of Economics29: 487–508. doi:10.2307/2556101
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Pan, X., and G. Tian. 2016. “Family Control and Loan Collateral: Evidence from China.” Journal of Banking & Finance67: 53–68.
Pawlina, G., and L. Renneboog.2005. “Is Investment-Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK.” European FinancialManagement11: 483–513. doi:10.1111/eufm.2005.11.issue-4
Pindado, J., I. Requejo, and C. De La Torre.2011. “Family Control and Investment-Cash Flow Sensitivity: Empirical Evidence from the Euro Zone.” Journal of Corporate Finance17: 1389–1409. doi:10.1016/j.jcorpfin.2011.07.003.
Schiantarelli, F., and A. Sembenelli. 2000. “Form of Ownership and Financial Constraints, Panel Data Evidence from Flow of Funds and Investment Equations.” Empirica 27: 175–192. doi:10.1023/A:1026588619191.
Stacchini, M., and P. Degasperi. 2015. “Trust, Family Businesses and Financial Intermediation.” Journal of Corporate Finance 33: 293–316. doi:10.1016/j. jcorpfin.2015.01.006
Villalonga, B., and R. Amit. 2006. “How Do Family Ownership.” Control and Management Affect Firm Value? Journal of Financial Economics80: 341–385
Wang, D.2006. “Founding Family Ownership and Earnings Quality.” Journal of Accounting Research 44 (3): 619-656.
Anderson, R. C., Duru, A., & Reeb, D. M. (2012). Investment policy in family controlled firms. Journal of Banking & Finance, 36(6), 1744-1758.
Andres, C.2011. “Family Ownership, Financing Constraints and Investment Decisions.” Applied Financial Economics21: 1641–1659. doi:10.1080/09603107.2011.589805.
Attiya, Y., Javaid, Iqbal, R. (2010). Corporate in Pakistan: Corporate Valuation, Ownership and Financing. Pakistan Institute of Development Economics
Bopaiah, C. 1998. “Availability of Credit to Family Businesses.” Small Business Economics 11: 75–86. doi:10.1023/A:1007944811224.
Chang, S.-J., and J. Shim.2015.WhenDoesTransitioning from Family to Professional Management Improve Firm Performance? Strategic Management Journal36 (9): 1297– 1316
D’Aurizio, L., T. Oliviero, and L. Romano.2015. “Family Firms, Soft Information and Bank Lending in a Financial Crisis.” Journal of Corporate Finance 33: 279–292. doi:10.1016/j.jcorpfin.2015.01.002.
De La Torre, and A. Guariglia.2011. “Does the Investment Opportunities Bias Affect the Investment-Cash Flow Sensitivities of Unlisted Smes?” The European Journal of Finance21: 1–25. doi:10.1080/1351847X.2012.752398
Doidge, C., Karolyi, G.A., Lins, K.V., and Stulz, R.M. (2005). Private benefits of control, ownership, and the cross-listing decision. NBER working paper series 11162.
Eklund, J., J. Palmberg, and D. Wiberg.2013. “Inherited Corporate Control and Returns on Investment.” Small Business Economics41 (2): 419–431
Faccio, M., and L. H. P. Lang. 2002. “The Ultimate Ownership of Western European Corporations.” Journal of Financial Economics 65: 365–395. doi:10.1016/S0304-405X (02)00146-0.
Fateminasab, A. (2014). Investigating the challenges and barriers of convergence between Iran and republic of Azerbaijan. UCT Journal of Social Sciences and Humanities Research, 2(1), 18-24.
Fazzari, S. M., R. G. Hubbard, and B. C. Petersen.1988. “Financing Constraints and Corporate Investment.” Brookings Paper on Economic Activity 1988: 141–195. doi:10.2307/2534426
Goergen, M., and L. Renneboog.2001. “Investment Policy, Internal Financing and Ownership Concentration in the UK.” Journal of Corporate Finance 7: 257–284.doi:10.1016/S0929-1199(01)00022-0
Gugler, K.2003. “Corporate Governance and Investment.” International Journal of the Economics of Business10: 261–289.doi:10.1080/1357151032000126238.
Hadlock, C. J.1998. “Ownership, Liquidity, and Investment.” The Rand Journal of Economics29: 487–508. doi:10.2307/2556101
Hung, J., and Y. Kuo.2011. “The Effect of Family Control on Investment-Cash Flow Sensitivity.” Applied Financial Economics 21: 897–904. doi:10.1080/09603107.2010.539533
James, H.S. (1999): “Owner as manager, extended horizons, and the family firm.” International Journal of the Economics of Business, 6, 41–55
Kaplan, S. N., and L. Zingales.1997. “Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?” The Quarterly Journal of Economics112: 169–215. doi:10.1162/003355397555163.
Kathleen M. Eisenhardt The Academy of Management Review Vol. 14, No. 1 (Jan., 1989), pp. 57-74
La Porta, R., F. Lopez-De-Silanes, and A. Shleifer. 1999. “Corporate Ownership around the World.” The Journal of Finance54: 471–517. doi:10.1111/0022-1082.00115
Modigliani,F., and M. H. Miller.1958. “The Cost of Capital, Corporate Finance and the Theory of Investment” American Economic Review48: 261–297
Morgado, A., and J. Pindado.2003. “The Underinvestment and Overinvestment Hypotheses: An Analysis Using Panel Data.” European Financial Management, European Financial Management Association 9 (2): 163–177
Pan, X., and G. Tian. 2016. “Family Control and Loan Collateral: Evidence from China.” Journal of Banking & Finance67: 53–68.
Pawlina, G., and L. Renneboog.2005. “Is Investment-Cash Flow Sensitivity Caused by Agency Costs or Asymmetric Information? Evidence from the UK.” European FinancialManagement11: 483–513. doi:10.1111/eufm.2005.11.issue-4
Pindado, J., I. Requejo, and C. De La Torre.2011. “Family Control and Investment-Cash Flow Sensitivity: Empirical Evidence from the Euro Zone.” Journal of Corporate Finance17: 1389–1409. doi:10.1016/j.jcorpfin.2011.07.003.
Schiantarelli, F., and A. Sembenelli. 2000. “Form of Ownership and Financial Constraints, Panel Data Evidence from Flow of Funds and Investment Equations.” Empirica 27: 175–192. doi:10.1023/A:1026588619191.
Stacchini, M., and P. Degasperi. 2015. “Trust, Family Businesses and Financial Intermediation.” Journal of Corporate Finance 33: 293–316. doi:10.1016/j. jcorpfin.2015.01.006
Villalonga, B., and R. Amit. 2006. “How Do Family Ownership.” Control and Management Affect Firm Value? Journal of Financial Economics80: 341–385
Wang, D.2006. “Founding Family Ownership and Earnings Quality.” Journal of Accounting Research 44 (3): 619-656.
Published
2019-04-29
How to Cite
Khan, M., Shabbir, M., Tahir, M., Ali, R., & Hussain, M. (2019). Investment-cash flow sensitivity in family owned Pakistani firms. Amazonia Investiga, 8(19), 376-386. Retrieved from https://amazoniainvestiga.info/index.php/amazonia/article/view/240
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