Large state-owned shareholders and cash holding: Evidence from family firms

Abstract

This paper investigates the effect of large state-owned shareholders on cash holding in family firms. Using a large sample of Chinese listed family firms for 2012–2022, we find that large state-owned shareholders positively impact cash holding in family firms. The finding remains valid to a battery of sensitivity tests and is attenuated for family firms with higher control power of the controlling shareholder, family firms originating from the privatization of state-owned enterprises, and family firms located in regions with lower levels of institutional development. Economic mechanism tests show that large state-owned shareholders increase cash holding in family firms by reducing related-party transactions and perk consumption. These findings support the view that better corporate governance may increase corporate cash holding and suggest that state-owned ownership is an essential variable in the predictors of cash holding in family firms.