Ownership Structure, Cash Constraints and Investment Behaviour in Russian Family Firms

Abstract

In this chapter, using a large representative panel dataset of 8,637 large firms in the European part of Russia and their balance sheet information over the period 2000–2004, we investigate the extent to which Russian firms and in particular a smaller sample of family firms are liquidity constrained in their investment behaviour and how ownership structure changes the relationship between internal funds and the investment decisions of these firms. Family firms differ from nonfamily firms due to the unique influence of family members in ownership, strategic control and succession and play a critical role in most economies throughout the world. We estimate a structural financial accelerator model of investment and first test the hypothesis that Russian firms overall and family firms in particular are cash constrained by conducting random-effects estimation. Our results confirm that firms are liquidity constrained when the ownership structure is not included in the econometric specifications. With regards to the ownership structure and the degree of ownership concentration, we find that companies owned by private individuals and families are less cash constrained, which is in agreement with previous literature. We also find that state-owned companies are less cash constrained, independently of whether their ownership structure is concentrated. No significant impact is found for banks and institutions.