The Effect of Political Connections and Family Ownership on Operating Cash Flows Management: Empirical Evidence from Egypt

Abstract

Purpose: This paper aims to investigate the effect of political connections and family ownership Each separately and the interactive effect between them on cash flows management. Design/Methodology/Approach: To analyze the research hypotheses, the author used a panel data model by ordinary least squares' Depending on historical data from 72 active non-financial firms listed on the Egypt Stock Exchange during the period of 2012-2019. The final data set comprises a total 576 firm-year observations from twelve major non-financial industry classifications. Findings: The current study found that there is a Positive impact of family ownership on cash flow management, and there is a positive relationship between political connections and cash flows management while there is a negative relationship between family firms with political connections and cash flows management. Research limitations/Implications: This research is limited to dealing with direct family ownership structures and does not deal with indirect family ownership. Likewise, this research does not deal with the political connections in companies that arise through direct government ownership. Also, this research was limited to using linear regression analysis that did not address nonlinear regression or the structural equation model to examine the effect of family ownership and political connections on cash flows management. Practical implications: Practitioners such as investors and lenders dealing with companies in the Egyptian capital market, which is considered one of the emerging markets with low protection for small investors, benefit from the results of this study due to the impact of family ownership and political connections when making their investment decisions. At the same time, the study helps provide important information about the business environment and conditions. Investing in developing countries like Egypt. Originality/Value: The current study contributes to the literature by showing that different characteristics of companies such as family ownership and political connections can produce different consistent results between an emerging and developed economy, especially in the area of cash flows management. As this is the first study to analyze these relationships in the financial market in Egypt, where the study demonstrates the important role of the impact of political connections and family ownership separately, in addition to the joint effect of political connections and family ownership on cash flows management through empirical evidence.