Abstract
PurposeThe study, by focusing on a context dominated by firms with a concentrated ownership, in which type-II agency problems (principal-principal conflicts) may occur, aims to depict which board configurations may be effective in protecting minority shareholders by mitigating the risk of controlling shareholders' expropriation via cash holdings.Design/methodology/approachThe research adopts a configurational approach and empirically conducts a fuzzy set/qualitative comparative analysis on a sample of 268 Italian listed companies.FindingsThe analysis depicts three combinations of board configurations and ownership structures that can be considered effective, namely Active Independent Control, Female Active Control and Double Internal Control.Originality/valueThe study revisits the topic of the risk of expropriation via cash holdings in a type-II agency problem framework and delineates the meaning of board effectiveness in a mature context ruled by family firms, like Italy. Furthermore, by drawing on a configurational approach, it overcomes the causality relationship between each board characteristic and cash holdings policies and reasons from a “bundle” perspective.
Highlights
In light of the recent economic and financial crisis, caused by the unprecedented COVID-19 pandemic, corporate cash holdings are receiving growing attention from both business practitioners and academic researchers (Benkraiem et al, 2020)
The research has adopted a configurational approach and has applied an fuzzy set/qualitative comparative analysis (fs/QCA) on a sample of 268 Italian listed companies to depict the effective combinations of board configurations able to mitigate the risk of expropriation by controlling shareholders via cash holding
Contributions First, this research contributes to the fields of studies on board effectiveness, by investigating the effectiveness of the BoD in mitigating the risk of expropriation via cash holdings in a context dominated by firms with concentrated ownership
Summary
In light of the recent economic and financial crisis, caused by the unprecedented COVID-19 pandemic, corporate cash holdings are receiving growing attention from both business practitioners and academic researchers (Benkraiem et al, 2020). While in a perfect financial market, there would be no incentive for companies to hold substantial amounts of cash, as they could transfer assets to cash or get funded at a fair cost in the market immediately, in the real market, because transaction costs and asymmetric information exist, companies need to Management Decision Vol 59 No 13, 2021 pp. They have underlined the need to have effective corporate governance to guarantee the right levels of cash reserves (Deb et al, 2017; Schauten et al, 2013). If on the one hand, cash allows firms to ensure daily operations, is immediately available and may be used as a buffer to prevent high opportunity costs during a cash shortage (Opler et al, 1999; Ozkan and Ozkan, 2004), on the other hand, cash flows should not be used for extracting private benefits (Jensen and Meckling, 1976)
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