Family-firms cash holdings determinants: Empirical evidence for Chile

Abstract

We examine family firms' cash holdings behavior compared to non-family firms. We study 133 Chilean non-financial listed firms in the period 2005‐2016. Our evidence is consistent with reputational (SEW) and agency theory explanations. Family firms maintain less cash reserves than non-family firms. Family firms with higher ownership concentration show lower cash holdings compared to non-family firms. If the CEO is a family member, results are reinforced. Family firms with higher corporate reputation have lower levels of cash holdings. There is no evidence of significant relationship between free cash flow and cash holdings in family firms. Firm value is negatively related to excess cash holdings, but family firms are less punished by the market than non-family firms. Family firms show a higher speed of adjustment in cash holdings compare to non-family firms, result which confirms main findings.