Journal of Family Business Strategy 13 (2022) 100466 Contents lists available at ScienceDirect Journal of Family Business Strategy journal homepage: www.elsevier.com/locate/jfbs Strings attached: Socioemotional wealth mixed gambles in the cash management choices of family firms Domenico Rocco Cambrea a, Yuliya Ponomareva b, *, Daniel Pittino c, e, Alessandro Minichilli d a Università Cattolica del Sacro Cuore, Largo Gemelli, 1, 20123, Milano, Italy b The Autonomous University of Barcelona, Campus de la UAB, Plaça Cívica, 08193, Bellaterra, Barcelona, Spain c Jönköping International Business School, Box 1026, 551 11, Jönköping, Sweden d Bocconi University, Via Roberto Sarfatti, 25, 20136, Milano, Italy e University of Udine, Via Tomadini, 30/a, 33100, Udine, Italy A R T I C L E I N F O A B S T R A C T Keywords: Family owners differ from other types of owners due to the presence of socioemotional wealth (SEW) concerns. Cash holdings We take a closer look at this distinctive aspect by examining the impact of family control and influence Corporate governance dimension of SEW on the cash management choices of family firms, conceptualizing it as a mixed gamble choice. SEW Our empirical analysis of 195 Italian firms listed on the Milan Stock Exchange between 2003 and 2015 shows Mixed gamble that family firms derive more value and incur lower costs than nonfamily firms when they increase their cash Boards of directors holdings. We then delve deeper into family firms’ cash management choices by exploring how different levels of family control and influence as well as types of board governance arrangements moderate this relationship. The empirical results indicate that the positive effects of family ownership are more pronounced under a high level of family control and influence and with separation of the board chair and CEO positions. 1. Introduction Kim & Bettis, 2014). Despite the large body of research on the performance effects of cash In recent years, corporate cash holdings have become a subject of holdings, the extant literature dominated by the free cash flow hy­ extensive scrutiny by researchers (Deb, David, & O’Brien, 2017; Kim & pothesis (Jensen, 1986) is largely silent about the role of shareholder Bettis, 2014; Li & Luo, 2020) as well as by practitioners, and corporate identity in shaping the optimal level of cash holdings. In this vein, it is governance activists (Burgess, 2020; Powell, 2019). The debate revolves implicitly assumed that the sole priority of shareholders is the maxi­ around the two main motives for cash accumulation: precautionary and mization of financial returns. The socioemotional wealth (SEW) opportunistic. On the one hand, scholars contend that cash accumulated perspective challenges this view, arguing that family firms differ from based on precautionary motivation can serve as a critical resource for a other types of owners due to the prominence of “nonfinancial aspects of firm, specifically in the context of uncertainty and changing market the firm that meet the family’s affective needs, such as identity, the conditions (Brown & Petersen, 2011; Schroth & Szalay, 2010). On the ability to exercise family influence, and the perpetuation of the family other hand, the proponents of the free cash flow theory (Jensen, 1986) dynasty”1 (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & draw attention to the risks of increasing cash holdings due to potential Moyano-Fuentes, 2007: 106). Numerous studies have shown the rele­ opportunistic expropriation by managers (Bammens, Voordeckers, & vance that SEW concerns for strategic choices made by family firms (for Van Gils, 2011; Harford, Mansi, & Maxwell, 2008). As a means of reviews, see Berrone, Cruz, & Gómez-Mejía, 2012; Swab, Sherlock, reconciling these divergent perspectives, other scholars suggest a Markin, & Dibrell, 2020). Indeed, the SEW perspective provides a rele­ curvilinear relationship between cash holdings and firm value, in which vant angle to examine the cash management choices of family firms both too little and too much cash can hurt performance (George, 2005; because such choices are closely related to the risk and control domains * Corresponding author. E-mail addresses: domenicorocco.cambrea@unicatt.it (D.R. Cambrea), yulia.ponomareva@uab.cat (Y. Ponomareva), daniel.pittino@ju.se (D. Pittino), alessandro. minichilli@unibocconi.it (A. Minichilli). 1 Although SEW concerns have been mainly examined in the context of family firms, some scholars have acknowledged the possibility that SEW may also be an important reference point for other categories of owners such as nonfamily owners or owner-managers (Schulze, 2016). https://doi.org/10.1016/j.jfbs.2021.100466 Available online 26 October 2021 1877-8585/© 2021 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 (Amess, Banerji, & Lampousis, 2015; Deb et al., 2017; Kim & Bettis, perception of firm vulnerability, proxied by the level of cash holdings, 2014), and thus have direct implications for the influence and control will shape the tradeoffs between financial and SEW concerns and will dimension of family SEW. Yet, apart from rare exceptions (Durán, Loz­ eventually be reflected in different combinations of extended and ano, & Yaman, 2016; Laffranchini & Braun, 2014), it has rarely been restricted SEW. Using the mixed gamble approach to predict the prev­ applied in the domain of capital-management choices, thus prompting alence of extended versus restricted SEW benefits provides a more the following research question: how does the presence of family owners nuanced understanding of family decision-making. Specifically, it pre­ shape the tradeoffs between precautionary and opportunistic motives for cash dicts under which circumstances the presence of family owners may lead accumulation? to positive outcomes and when its influence could be detrimental for an Drawing on SEW perspective, we contend that an increase in cash organization, an issue that has long been debated in the family business holdings constitutes a mixed gamble, i.e., a choice that implies the pos­ literature (Craig & Newbert, 2020; Madison, Holt, Kellermanns, & Ranft, sibility of both gain and loss outcomes (Gómez-Mejía, Patel, & Zell­ 2016). weger, 2018; Gómez-Mejía et al., 2014), as SEW benefits may be derived Second, we tap into the boundary conditions of our model by from increased financial stability but can also provoke a financial loss exploring how heterogeneity among family firms in terms of family due to family opportunism. When making cash management choices, control and influence shapes the mixed gamble between SEW and family firms then weigh these current and potential SEW gains and financial goals, and ultimately is reflected in the balance between losses against respective financial gains and losses. For example, when restricted and extended SEW. We contribute to the rapidly evolving cash resources are scarce, posing a threat to firm survival, an alignment research on family-firm heterogeneity (Daspit, Chrisman, Ashton, & between SEW and financial concerns will occur, generating benefits that Evangelopoulos, 2021; Dibrell & Memili, 2019; Nason, Carney, Le extend to all shareholders, denoted as extended SEW (Miller & Le Breton-Miller, & Miller, 2019) by showing that the mixed gamble Breton-Miller, 2014; Gómez-Mejía et al., 2018). However, the balance choices, and consequently extended and restricted SEW outcomes, may between extended and restricted SEW may not be identical across all not be identical in all family firms. Rather, they vary depending on the levels of cash holdings. When cash resources are abundant, firm survival degree of family control and influence and on corporate governance is less of a concern, thus driving a wedge between SEW and financial mechanisms. Particularly, we theorize and provide empirical evidence concerns. This division may eventually result in the family owners’ that the presence of family owners will render the most benefits to the pursuit of SEW at the expense of financial losses, reflecting in benefits firm when two conditions are fulfilled: a) the family enjoys a high degree exclusive to the owning family, denoted as restricted SEW (Miller & Le of control and influence, and b) the board chairperson and CEO offices Breton-Miller, 2014). Because of the alignment of SEW and financial are separated. concerns at low to medium levels of cash holdings, we predict that Finally, we contribute to the research on corporate cash holdings family firms will profit more from increasing their cash holdings than (Deb et al., 2017; George, 2005; Kim & Bettis, 2014) by introducing their nonfamily counterparts. ownership as an essential contingency factor shaping the motives for We subsequently explore heterogeneity among family firms based on cash accumulation. The previous research focusing on cash management the nature and extent of family control and influence (Alessandri, Cer­ choices grounded in the free cash flow hypothesis (Jensen, 1986) treats rato, & Eddleston, 2018; Swab et al., 2020) as a boundary condition for owners primarily as a homogeneous group. Our study complements the the relationship between cash holdings and firm value in family firms. emerging work applying SEW perspective to explain the financial More specifically, we theorize that, at different levels of cash holdings, choices of family firms (Baixauli-Soler, Belda-Ruiz, & Sánchez-Marín, the extent of family control and influence will accentuate SEW concerns, 2021; Belda-Ruiz, Sánchez-Marín, & Baixauli-Soler, 2021; Comino-Jur­ thereby reinforcing both extended and restricted SEW. In our theoriza­ ado, Sánchez-Andújar, & Parrado-Martínez, 2021), showing the rele­ tion, we recognize the board of directors as an important corporate vance of this perspective toward understanding the divergent motives governance mechanism (Fama & Jensen, 1983). We argue that in the among business owners when making cash management choices, as well context of high family control and influence, vigilant board monitoring as the reflections of these motives on different performance outcomes. will limit family owners’ pursuit of restricted SEW at high levels of cash Our study also provides practical implications. Namely, our findings holdings, flattening the inverted U-shaped relationship between cash highlight that the accumulation of cash holdings may enhance firm holdings and firm value. value in listed family firms, and that this value is maximized when board We test our hypotheses on a longitudinal sample of 195 Italian listed monitoring practices designed to mitigate family opportunism exist. In firms between 2003 and 2015. Italy provides an interesting setting to light of the current trend of shareholder activists pushing firms to explore the effects of family governance strategies due to the strength of redistribute cash back to shareholders by increasing their share the family institution in Italian society (Alesina & Giuliano, 2014) and repurchases and dividends (Loop, 2016), our study expresses a word of the country’s long family business tradition. First, unlike Anglo-Saxon caution to practitioners about the expected positive implication of such countries characterized by widely diffused ownership, a large percent­ policies for firm value in the context of listed family firms. We contend age of Italian listed firms are controlled and often managed by families that shareholder identity should be considered when interpreting the (Minichilli, Brogi, & Calabrò, 2016; Volpin, 2002). Second, less liquid effectiveness of firm cash management choices. financial markets make cash resources an essential internal source of financing for Italian firms. These two distinctive features of the focal 2. Theoretical framework country context allow us to rigorously examine differences in cash management strategies between family and nonfamily firms. According to the behavioral theory of the firm, the strategic decision- Our study provides three key contributions. First, we provide making process is the outcome of a consensus generated within the empirical support for the SEW perspective on the influence of family dominant coalition (Cyert & March, 1963). In contrast to agency theory, principals on firm strategic decisions (Gómez-Mejía et al., 2011 which assumes that firm principles are motivated solely by the maxi­ Gómez-Mejía, Cruz, Berrone, & DeCastro, 2011; Gómez-Mejía, Neacsu, mization of the returns on the principals’ capital (Jensen & Meckling, & Martin, 2019) by extending the analysis to the domain of cash man­ 1976), behavioral theory acknowledges the heterogeneity among prin­ agement. More specifically, we explain how and why the salience of the cipals and posits that the decisions of the members of the dominant mixed gamble choices faced by family ownership influences the per­ coalition can be attributed not only to financial but also to behavioral formance outcomes of cash management decisions. In doing so, we motives. Family owners represent an important group within the integrate the concept of the mixed gamble (Gómez-Mejía et al., 2018) dominant coalition (Chua, Chrisman, & Sharma, 1999) and are char­ with the recently developed concepts of extended vs. restricted SEW acterized by unique preferences due to the close alignment of owner­ (Tsao, Le Breton-Miller, Miller, & Chen, 2020). We argue that the ship, management, and control (Chrisman, Chua, & Sharma, 2003). 2 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 For family owners, the firm is not only a source of financial profits Gómez-Mejía et al., 2018). In contrast, stable environments decrease but also provides nonfinancial benefits in the form of SEW. Entailing firm vulnerability, thereby putting SEW and financial concerns at odds both positive and negative implications for the firm, SEW goals may be and making family owners prioritize SEW concerns in their derived from distinctive sources (Dou, Wang, Su, Fang, & Memili, 2020). decision-making. Furthermore, the importance attributed to SEW rela­ Examples of activities enhancing socioemotional wealth include build­ tive to financial concerns may change depending on family involvement ing and preserving the legacy of the family and passing on family wealth in the business. For example, greater control and involvement of the to subsequent generations (Berrone, Cruz, Gómez-Mejía, & family in the business has been suggested to amplify both SEW and Larraza-Kintana, 2010; Zellweger, Nason, Nordqvist, & Brush, 2013). financial concerns of family owners (Alessandri et al., 2018; Bauwer­ However, a strong orientation toward the family can also impose some aerts, Diaz-Moriana et al., 2020). costs, giving rise to nepotism and altruism toward family members Building on these theoretical advancements, we further nuance the (Bertrand & Schoar, 2006). Given both the positive and negative im­ notion of mixed gamble choices in family firms by linking these mixed plications of a family’s pursuit of SEW for firm and nonfamily stake­ gamble choices to SEW outcomes. The current research on extended holders, family business research distinguishes between extended SEW, versus restricted SEW and the family firms’ mixed gamble choices has i.e., the benefits that spill over to the firm and its shareholders, and SEW been developed largely in silos; the discussion on extended versus benefits that are restricted to family only, which may come at the restricted SEW has mainly evolved in a broader debate about the in­ expense of the firm and nonfamily owners (Laffranchini, Hadjimarcou, fluence of family firms on organizational performance (e.g., Dow & & Kim, 2020; Miller & Le Breton-Miller, 2014). McGuire, 2016), whereas the mixed gamble concept has been primarily Advancing the understanding of the theoretical mechanisms applied to explain the strategic choices of family firms (e.g., Alessandri explaining how family ownership influences organizational outcomes, et al., 2018). However, the two concepts are closely related as SEW Wiseman and Gómez-Mejía (1998) proposed the behavioral agency concerns in a mixed gamble choice can lead to both extended and model (BAM). The BAM postulates that since family owners derive restricted SEW. A natural step to extend this body of research is thus to greater utility from SEW than from other sources, their aversion to a examine how the mixed gamble choices reflect in firm performance SEW loss will shape their risk preferences and ultimately be reflected in outcomes. In doing so, we propose that depending on the firm’s firm decision making. According to this perspective, SEW rather than vulnerability, which results from the firm’s level of cash holdings, the financial wealth-at-risk represents the fundamental endowment for tradeoffs between SEW and financial concerns may be reflected in family owners and constitutes the primary reference point for decision different combinations of extended and restricted SEW. Particularly, making (Gómez-Mejía, Nuñez-Nickel, & Gutierrez, 2001; Gómez-Mejía, when cash holdings are low, family firms have a smaller “buffer” against Makri, & Kintana, 2010). Previous research has provided empirical performance shortfalls, increasing firm vulnerability. Under high support for this model by demonstrating how affective investments by vulnerability, SEW and financial concerns are likely to be aligned family members influence various outcomes, including financial because “if the firm fails to survive, SEW and financial wealth would risk-taking (Gómez-Mejía et al., 2007), diversification strategies disappear altogether” (Gómez-Mejía et al., 2018: 1373). The alignment (Gómez-Mejía et al., 2010) and CEO turnover (Visintin, Pittino, & of SEW and financial concerns implies the alignment between the in­ Minichilli, 2017). terests of family and nonfamily shareholders and thus should lead to the The notion of SEW loss proposed in the behavioral agency model has dominance of extended SEW. However, as cash holdings increase, the been further developed by Gómez-Mejía et al. (2014), who argue that level of firm vulnerability decreases, thus providing family owners with rather than considering the pure loss in undertaking decisions, family the opportunity to engage in mixed gambles in which an increase in SEW members balance the potential gains and losses in socioemotional and in can come at the cost of financial losses for their firm. In the face of such financial wealth domains, dubbing such choices “mixed gambles” mixed gambles, family owners are more likely to prioritize SEW con­ (Bromiley, 2010). The two wealth domains are, however, not fully cerns, leading to restricted SEW dominance. In the next section, we fungible, which implies that an increase in SEW may come in conflict apply this theoretical framework to explain how different combinations with the preservation of financial wealth (Gómez-Mejía et al., 2018). of SEW and financial concerns influence firm value at different levels of Consideration of the trade-offs between financial and socioemotional cash holdings. wealth has contributed to a more nuanced understanding of the strategic choices in family firms and has been applied to numerous real-life 3. Hypotheses development business situations, including initial public offering (IPO) pricing (Kot­ lar, Signori, De Massis, & Vismara, 2018), internationalization (Ales­ The decision to accumulate cash holdings has been attributed to both sandri et al., 2018), business growth (Bauweraerts, Diaz-Moriana, & precautionary and opportunistic motives. When accumulated due to the Arzubiaga, 2020), and tax aggressiveness (Bauweraerts, Vandernoot, & precautionary motive, cash holdings may constitute a valuable resource Buchet, 2020). Furthermore, studies also show that rather than evalu­ for adaptive advantages and thus can lead to value creation (Bourgeois, ating mixed gambles based on current gains and losses, family firms 1981; Cyert & March, 1963). Slack allows executives to quickly reem­ evaluate those mixed gambles against future financial and SEW gains ploy resources to invest in attractive business opportunities (Hambrick and losses (Alessandri et al., 2018). Overall, this literature demonstrates & Snow, 1977) while providing a necessary buffer for strategic adap­ that the strategic decisions of family firms may differ from those of tation, insulating firms from cash flow volatility (O’Brien, 2003). nonfamily firms because of diverging reference points. While nonfamily However, the increase in cash holdings may not be costless for the firm. firms base their decisions primarily on financial wealth concerns, family By decreasing environmental constraints, slack reduces the incentives firms weigh the two sometimes competing reference points of financial for continuous adaptation while weakening the discipline of the and SEW concerns in tandem (Chua, Chrisman, & De Massis, 2015). resource allocation (Kim, Kim, & Lee, 2008). Managers with access to However, the perception of mixed gambles may not be uniform substantial cash resources may become complacent and overoptimistic, across family firms; instead, their priorities may alternate between SEW investing in pet projects with unjustified risk and negative net present and financial wealth depending on the firm context (Jiang, Kellermanns, value simply because the funds are available. In addition to weakened Munyon, & Morris, 2018). Under conditions of high firm vulnerability, financial discipline, the availability of slack might also enable oppor­ “meeting firm financial obligations is a necessary condition for the tunistic behaviors, leading to value destruction. As resource availability family owners to enjoy any SEW and financial utility” (Gómez-Mejía and managerial discipline are imperative for value creation, we expect et al., 2018: 1371); thus, firm vulnerability poses a dual threat to both an inverted U-shaped relationship between firm value and cash hold­ financial and SEW concerns, which in turn attenuates the potential ings, in which value generation is at its maximum at moderate levels of tradeoffs between the two (Calabrò, Minichilli, Amore, & Brogi, 2018; cash holdings. Low and high cash holdings may lead to inhibited 3 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 strategic opportunities and increased agency costs, respectively (George, distress, family owners will be more likely to pursue SEW goals, the 2005; Kim & Bettis, 2014; Nason & Patel, 2016). achievement of which will ultimately be reflected in restricted SEW outcomes. 3.1. Cash holding and firm value in family versus nonfamily firms To summarize, because extended SEW benefits are unique to family businesses, we expect that family firms should derive higher benefits Due to the significance of SEW concerns for family owners, the bal­ from cash holdings at a lower cost compared to nonfamily firms. At low ance between precautionary and opportunistic motives in family firms and medium levels of cash, when the firm survival threat is most should differ from that in their nonfamily counterparts. Family owners’ apparent, SEW and financial concerns should be aligned, leading to the preference for control (Michiels & Molly, 2017) and the constraints prevalence of extended SEW, which will be reflected in higher firm faced when obtaining external financing (Zata Poutziouris, 2001) make performance due to the accumulation of cash. However, at very high cash holdings a critical investment resource and an important source of levels of cash holdings, financial and SEW concerns are likely to clash wealth security and stability (Boubakri & Ghouma, 2010; Fernando, and should eventually lead to the prevalence of restricted SEW, thereby Schneible, & Suh, 2014; Gómez-Mejía et al., 2018; Tanaka, 2014). The changing the slope of the curve to negative. We thus propose the firm-specific knowledge obtained by family owners through their close following hypothesis: involvement in the management and ownership of the firm (Thomsen & Hypothesis 1. Compared to nonfamily firms, family firms display a Pedersen, 2000) enables them to make better assessments of managerial flatter inverted U-shaped relationship between cash holdings and firm decisions and to exercise their control, which allows them to derive value, and the curve’s turning point is shifted to the right. extended SEW by effectively decreasing the costs of managerial oppor­ tunism (Collin, Ponomareva, Ottosson, & Sundberg, 2017). Taken together, the precautionary motives for cash accumulation in family 3.2. The moderating role of family control and influence firms are expected to be stronger than those in their nonfamily coun­ terparts, while the opportunistic use of cash holdings is expected to be As we have explained the distinct preferences shaping cash man­ less of a concern. agement choices in family and nonfamily firms, we now turn to how the In contrast, nonfamily shareholders can diversify their investments degree of family control and influence shapes the relationship between and thus benefit from pursuing a high-risk/high-return strategy cash holdings and firm value among family firms. Family control and (Anderson & Reeb, 2003), making them less likely to favor accumulating influence constitute one of the central components of SEW theory and cash resources out of precautionary motives. At the same time, oppor­ one of the most studied dimensions of SEW (Berrone et al., 2012; Swab tunistic reasons may increase as the absence of a significant endowment et al., 2020). This dimension becomes especially relevant in cash man­ in a firm makes nonfamily shareholders less capable and motivated to agement mixed gambles since control and influence enable owners with engage in the monitoring and stewardship of the firm. Furthermore, power and legitimacy to pursue SEW concerns (Zellweger, Kellermanns, nonfamily firms’ ability to attract external financing is less constrained Chrisman, & Chua, 2012). Particularly, the greater control and influence (Zata Poutziouris, 2001), increasing the opportunity costs of cash of family owners strengthen their emotional ties and identification with holdings. Consequently, nonfamily firms may experience higher costs the firm and thus enhance both their importance and legitimacy to act in and lower benefits associated with an increase in cash holdings, ways to increase SEW (Jiang, Ma, & Shi, 2017; Zellweger et al., 2012). magnifying the harmful effects of cash holdings on firm value while Drawing on insights from the emergent debate on heterogeneity limiting the positive impact. Based on these arguments, we expect the among family firms (Daspit et al., 2021; Dibrell & Memili, 2019; Nason opportunistic motives for cash accumulation to be stronger and the et al., 2019), we argue that both extended and restricted SEW outcomes precautionary motives to be less pronounced in nonfamily firms. This should be more pronounced in the presence of the high control and in­ should, in turn, manifest in a flattened inverted U-shaped relationship fluence of family owners. Previous research has argued that the family between cash holdings and firm value in family firms, with the turning pursuit of SEW goals depends on the firm’s degree of family control and point shifted to the right compared with that of nonfamily firms. influence (Calabrò et al., 2018; Gómez-Mejía et al., 2014). Due to the Although family firms can enjoy greater benefits and reduced costs presence of socioemotional tradeoffs, which differ depending on the from the accumulation of cash holdings compared to nonfamily firms, scarcity of cash resources, this effect should become particularly salient the positive effect may eventually plateau and then change to a negative in the context of cash holdings (Gómez-Mejía et al., 2014). As socio­ effect as the tradeoffs associated with the mixed gamble choice between emotional and financial concerns are more aligned at low and medium protecting and increasing SEW shift (Gómez-Mejía et al., 2014, 2018; levels of cash holdings, the high control and influence of the family will Kotlar et al., 2018). Low and medium levels of cash holdings pose a enhance the family’s emotional ties with the firm while providing the threat to firm survival and put family ownership at risk. Such situations owners with the capacity and the motivation to pursue SEW goals. The entailing grave consequences for both socioemotional and financial presence of the high control and influence of family owners at low and wealth can align SEW and financial concerns (Gómez-Mejía et al., 2018; medium levels of cash holdings enables them to protect their SEW Minichilli et al., 2016), thereby making family owners more prone to endowment in the firm by lessening the pressure for short-term financial exhibit stewardship behaviors toward the firm and alleviating the risk of results and shifting the strategic focus toward sustainable long-term family opportunism (Gómez-Mejía et al., 2019). In contrast, precau­ growth (Prencipe, Bar-Yosef, Mazzola, & Pozza, 2011). Such strategies tionary motives become less relevant at high levels of cash holdings, may require extensive investments spread over the years, thus making driving a wedge between SEW and financial concerns. In such an envi­ cash reserves a valuable source of capital and enabling the firm to reduce ronment, when firm survival and consequently family ownership are less the risks associated with external financing. In addition, controlling threatened, an abundance of cash resources may give rise to nepotism, owners are more motivated and capable of reducing managerial family entrenchment (Schulze, Lubatkin, Dino, & Buchholtz, 2001), and opportunism (Collin et al., 2017). In contrast, a low level of family dysfunctional conservatism (Cater & Schwab, 2008; Naldi, Nordqvist, control and influence is expected to decrease the capacity, motivation, Sjöberg, & Wiklund, 2007). These “exploitative investments,” which and legitimacy to pursue SEW goals (Zellweger et al., 2012), ultimately correspond to low-risk, low-return strategies, may come at the cost of reflecting in reduced extended SEW. Taken together, at low to medium more attractive growth opportunities (Patel & Chrisman, 2014; Young, levels of cash holdings, when SEW and financial concerns are more Peng, Ahlstrom, Bruton, & Jiang, 2008). Consequently, at high levels of aligned, greater control and influence of family owners will enable them cash holdings, when the potential for SEW wealth gains is high, but the to act in ways that increase their SEW, finally reflecting extended SEW loss is less apparent, family owners may face a mixed gamble in which outcomes. SEW concerns are at odds with financial ones. In the absence of financial On the other hand, at high levels of cash holdings, in a situation in 4 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 which SEW and financial goals are more likely to be at odds, in cash nonfamily principals, and limiting the discretion of the former (Ander­ management choices, controlling family owners may use their power son & Reeb, 2004; Goel, Voordeckers, van Gils, & van den Heuvel, and legitimacy to prioritize SEW benefits over financial wealth. When 2013). Family firm boards with a greater proportion of independent possessing a high level of control and influence, family owners may have directors are in a better position to contain family opportunism and thus greater motivation and ability to pursue family-centric goals, which may protect nonfamily shareholders from wealth expropriation (Bettinelli, be reflected in more pronounced restricted SEW benefits (Cho, Miller, & 2011). When family opportunism is effectively contained, the negative Lee, 2018). In contrast, low levels of control and influence will constrain effects of accumulating significant cash holdings decrease, allowing family owners from protecting and increasing their SEW at the expense firms to derive greater benefits from accumulating cash reserves and of financial wealth. We thus propose that a high level of family control realize these benefits over more extended periods. We expect the posi­ and influence will augment extended SEW benefits at low and medium tive effect of board independence to be more pronounced at a higher levels of cash holdings and augment restricted SEW at high levels of cash level of family control and influence and when cash resources are holdings. Therefore, we propose the following hypothesis: abundant as the threat of family opportunism is the highest in this context (Cho et al., 2018). In contrast, when cash resources are Hypothesis 2. Family control and influence moderate the inverted U- restrained, which poses a threat to firm survival, family owners are more shaped relationship between cash holdings and firm value such that likely to use their control and influence in pursuit of extended SEW, under high levels of family control and influence, the curve is flattened reducing the threat of family opportunism. When the danger of family and the turning point shifts to the right. opportunism is less of a concern, as reflected in a low level of restricted SEW, the effects of board monitoring are unlikely to be reflected in 3.3. The role of board monitoring in family firms’ cash allocation choices performance outcomes. We, therefore, propose that board independence moderates the inverted U-shaped relationship between cash holdings As we argued above, a high level of family control and influence will and firm value, flattening the curve and simultaneously shifting the accentuate both extended and restricted SEW outcomes. As the SEW turning point to the right. Therefore, we propose the following literature is largely silent on how to mitigate restricted SEW outcomes, hypothesis: we turn to the corporate governance literature, which has long argued Hypothesis 3a. Under a high level of family control and influence, that effective governance by the board of directors can mitigate the board independence moderates the inverted U-shaped relationship be­ opportunistic use of cash holdings (Belkhir, Boubaker, & Derouiche, tween cash holdings and firm value in family firms such that the curve is 2014; Boubaker, Derouiche, & Nguyen, 2015; Kuan, Li, & Liu, 2012). flattened and the turning point shifts to the right. Previous studies have shown that the effectiveness of governance mechanisms in cash management depends on a firm’s investment op­ Balancing the power between insiders and outsiders on the board can portunities (Belghitar & Khan, 2013). We build on this body of literature also be achieved by separating the CEO and the board chair positions. by proposing that monitoring by the board of directors can serve as an Due to the specificity of their goals and capacity to influence their firm, effective lever to align the interests of insiders (family and management) family owners tend to have strong formal and informal influences over and outsiders (nonfamily shareholders). We contend that the effects of management (Nordqvist, 2012; Steier, 2003). It is not uncommon for board monitoring will be most pronounced at high levels of cash hold­ family members to hold executive positions. A concentration of au­ ings and under a high degree of family control and influence, thereby thority in the hands of insiders by maintaining CEO duality can be reducing family-restricted SEW while preserving the extended SEW. detrimental for family firms as it provides the family with largely un­ Representing an arena for principals to exercise their control and contested power to divert cash resources from their firms. In contrast, influence over a firm, the board of directors constitutes a central splitting the authority between the chairperson and the CEO can aid in governance body for protecting shareholders’ interests in family firms restoring the balance of power between insiders and outsiders, thereby by balancing the interests of insiders and outsiders (Anderson & Reeb, reducing the potential for family opportunism at high levels of cash 2004; Bammens et al., 2011; Corbetta & Salvato, 2004). Previous studies holdings. In line with the arguments above, we expect the effect of the have shown the particular importance of boards for publicly listed separation of the board chair and CEO positions to be most pronounced family firms as effective monitoring by the board can reduce the family when the threat of family opportunism is the highest, namely, when cash owners’ ability to engage in opportunistic actions at the expense of resources are abundant and when the family retains significant control nonfamily shareholders and can thus reduce family-restricted SEW (Le and influence over the firm. Conversely, when cash resources are Breton-Miller & Miller, 2013). Under a high level of family control and restrained, which poses a threat to firm survival, family owners are more influence and when cash resources are abundant, family owners will likely to use their control and influence in pursuit of extended SEW, have the capacity and motivation to pursue restricted SEW benefits (Cho thereby reducing the threat of family opportunism and consequently et al., 2018). Consequently, when a family enjoys a high level of control making the effects of board monitoring less pronounced. We thus pro­ and influence, board monitoring is expected to be particularly important pose the following hypothesis: at high levels of cash holdings, i.e., a situation in which SEW and Hypothesis 3b. Under a high level of family control and influence, financial concerns are at odds and restricted SEW outcomes are likely to CEO duality moderates the inverted U-shaped relationship between cash prevail. By exercising effective monitoring, boards of directors can holdings and firm value in family firms such that the curve steepens and attenuate family opportunism, thereby reducing restricted SEW. In the turning point shifts to the left. contrast, under a low level of cash holdings, when SEW and financial concerns are aligned, the threat of family opportunism is less of a 4. Data and methods concern, and thus, the effects of board monitoring will be less pronounced. 4.1. Sample Effective board monitoring has been associated primarily with the two central elements of board structure: directors’ independence and the Our initial sample comprised all Italian listed industrial firms from separation between the CEO and board chair positions (van Essen, the Mercato Telematico Azionario (MTA), the leading Italian equity Engelen, & Carney, 2013; Cambrea, Calabrò, La Rocca, & Paolone, market dedicated to midsize and large companies. Characterized by a 2021). The presence of independent directors in family firms has been long family business tradition in which family firms represent a large argued to aid the reconciliation of conflict between family and percentage of listed companies, Italy provides fertile ground to examine nonfamily shareholders by reducing the potential overemphasis on the strategic choices by heterogeneous family owners. Furthermore, in family issues, reducing the information asymmetry between family and 5 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Italy, weak investor protection legislation (Lepore, Paolone, & Cambrea, operationalized as the percentage of firm equity held by the family in 2018; Pagano & Volpin, 2005) and the difficulty of obtaining external firms in which the board chair position was held by a family member financing (D’Aurizio, Oliviero, & Romano, 2015; La Rocca & Cambrea, (Berrone et al., 2012; Calabrò et al., 2018). If the chair of the board was 2019; Stacchini & Degasperi, 2015) signify the importance of cash not a family member, the variable was coded as zero. CEO dualitywas management choices amplifying both opportunistic and precautionary coded as a dummy variable that took a value equal to one if the CEO was motives for hoarding cash. also the chairperson of the board and took a value of zero otherwise. We excluded banks, insurance companies, and financial institutions Independent directors is a variable that was measured as the ratio of in­ from our sample (Dittmar & Mahrt-Smith, 2007). From the initial dependent directors to the number of directors on the board. sample of 2,263 firm-year observations, we excluded 119 observations with insufficient financial/ownership data and 68 observations with 4.2.4. Control variables incomplete governance data, arriving at the final sample of 2,076 We included several financial variables as controls in all the re­ firm-year observations of both family and nonfamily firms for the period gressions. Firm size was measured as the natural logarithm of total sales between 2003 and 2015. Because we controlled for the previous year’s (Martínez-Sola, García-Teruel, & Martínez-Solano, 2013). Debt was performance (MTBRn-1) and some companies entered and others exited calculated as the ratio of long-term debt to total assets (Bates, Kahle, & the stock market during the analyzed period, from the sample of 2,076 Stulz, 2009). Sales growth was a proxy to identify the sales growth of the firm-year observations, our final sample was reduced to 1,881 firm-year firm’s industry (using the industry classification provided by the Italian observations, of which 1,408 were for family firms and 473 for Stock Exchange) and to identify the firm’s growth opportunities nonfamily firms. Consistent with previous studies (Andres, 2008), we (Brisker, Çolak, & Peterson, 2013). Dividend was computed as the total defined a family firm as a firm in which the individual shareholder cash common dividends paid with respect to market capitalization (founder and/or family members) or entity holds more than 25 % of (Mancinelli & Ozkan, 2006). Cash flow was calculated as the cash flow shares and/or the family is represented on the board of directors. divided by total sales (Huang, 2009). Capex was used as a proxy for the To classify the controlling shareholder (family vs. nonfamily), we capital expenditures of a company and was computed as capital ex­ examined the ownership structure using several public sources, such as penditures divided by total assets (Kim & Bettis, 2014). Board size is the Consob (Commissione Italiana per le Società e la Borsa) filings, the Italian number of members of the board of directors. Additionally, we included Stock Exchange website, the annual reports on corporate governance firm age, measured in the number of years and subsequently logarith­ and the financial statements of the individual company. Additionally, mized (Miller, Amore, Le Breton-Miller, Minichilli, & Quarato, 2018). To we referred to the information disclosed by corporations in the ‘investor control for the influence of the firm’s ownership structure, we included relations’ section of their official websites. Based on the information the dummy variable institutional investor, which is coded as one if at least included in these reports, we identified the majority shareholders of one institutional investor held more than 2% of the shares (Bianco, each company. When a legal entity (company) is a shareholder, we Ciavarella, & Signoretti, 2015), and the variable ownership concentration, inspected Consob filings, which allowed us to clarify the identity of the which is measured by the proportion of shares held directly by the ultimate owner whenever firms are controlled through intermediate largest three shareholders (Deman, Jorissen, & Laveren, 2018). Finally, corporations or pyramids. we controlled for economic fluctuations by including the variable crisis, To identify the presence of family members on boards, we examined which took a value of one for the years 2008–2013 and a value of zero the board composition information using the firms’ corporate gover­ otherwise (Cambrea et al., 2021). nance annual reports and matching the reports with those available in Consob filings and public information collected through company web­ 4.3. Empirical approach sites and specialized financial press (i.e., MF Milano Finanza, Il Sole 24 Ore). We identified the presence of family on a board if the last name of To test our hypotheses, we followed the empirical approach adopted one of the majority shareholders matched the last name of one or more by Deb et al. (2017) and conducted the Hausman test, which suggested a directors on the board (Miller, Minichilli, & Corbetta, 2013). The preference for fixed effects over a random effects model. In line with financial data were obtained from Datastream. previous studies, to mitigate endogeneity issues, we included the lagged MTBR as a control variable in all regressions (O’Brien & Folta, 2009; 4.2. Variables Wu, Yang, & Zhou, 2017). In addition, using the Davidson-MacKinnon test, we tested whether the independent variable of the study, cash 4.2.1. Dependent variable holdings, created endogeneity problems. The test result was not signifi­ Firm value was operationalized through the market-to-book ratio cant; therefore, the fixed effects model was confirmed to be suitable for (MTBR), which was measured as the market value of assets divided by our empirical analysis. All models included year fixed effects. The results the book value of total assets. The market value of assets was computed of the main empirical analyses are shown in Table 3. as the book value of assets plus the market value of equity minus the sum Furthermore, although some studies on the relationship between of the book value of common equity and deferred taxes (O’Brien & Folta, cash holdings and firm value do not detect endogeneity issues (Attig, El 2009). We opted to use MTBR as our dependent variable because it re­ Ghoul, Guedhami, & Rizeanu, 2013; Kim & Bettis, 2014; La Rocca & flects both market- and accounting-based performance (Deb et al., Cambrea, 2019; Pinkowitz, Stulz, & Williamson, 2006; Platikanova, 2017). 2016), others indicate potential endogeneity concerns due to omitted variables and reverse causality (Deb et al., 2017; Liu, Luo, & Tian, 2015; 4.2.2. Independent variable Nason & Patel, 2016). To reduce the omitted variable bias, we per­ Cash holdings were measured as the ratio of cash and cash equivalents formed fixed effects regression analysis, which allowed us to control for to total assets (Ozkan & Ozkan, 2004). time-invariant firm-specific characteristics and to consider heterogene­ ity issues that may arise from our panel data (Jiang et al., 2017). 4.2.3. Moderating variables Regarding potential reverse causality issues, we followed the empirical Family firm was coded as a dichotomous variable and was given a approach of Kim and Bettis (2014) and performed a Granger causality value of one when at least one of two criteria was met: (a) the individual test (Granger, 1969). The empirical findings, not reported for reasons of shareholder (founder and/or family members) or entity held more than brevity, show that the estimated lagged coefficient of cash holdings is 25 % of the shares, or (b) the family was represented on the board of positive and statistically significant (ß = 0.412, p < 0.05). In contrast, directors (Andres, 2008). Otherwise, it was given a value of zero. the estimated coefficient of MTBR is not statistically significant (ß = The family control & influence (FCI) dimension of SEW was 0.006, p > 0.10), suggesting the presence of unidirectional causality 6 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 from cash reserves to firm value. Consequently, it does not appear that provides the main descriptive statistics (mean, median, standard de­ possible reverse causality problems affect the validity of our econo­ viations, and first and third quartiles) for the entire sample of com­ metric results. panies. Panel B shows the results of the difference of means tests between family and nonfamily firms. 5. Analyses and results Concerning the independent variable of the study, on average, Italian listed companies have cash holdings equal to 11.2 % of their total assets. 5.1. Descriptive statistics This percentage is close to the 14 % level found for all publicly traded U. S. firms (Deb et al., 2017) and for a set of sixteen European listed firms Table 1 reports the summary statistics for our sample. Panel A (Mortal, Nanda, & Reisel, 2020); this percentage is also very similar to the 10 % level of cash documented for Italian private companies (Bigelli & Sánchez-Vidal, 2012). In our sample, family firms represent approx­ Table 1 imately 75 % of all companies. Concerning board characteristics, the Descriptive statistics. results show that, on average, the CEO is also the board chair in about 24 Panel A: descriptive statistics % of cases. Additionally, the average percentage of independent di­ for the entire sample of firms rectors on the boards is 39 %. Variable Mean Standard First Median Third Regarding the differences in the means for variables between family deviation quartile quartile and nonfamily firms (Panel B of Table 1), the main independent variable of the study, cash holdings, differs significantly between family and MTBR 1.519 0.753 1.098 1.315 1.704 Tobin’s Q 0.964 0.693 0.587 0.792 1.090 nonfamily firms. Consistent with previous research (Lozano & Durán, ROA 0.018 0.199 − 0.018 0.032 0.075 2017), family firms tend to hold greater cash reserves than nonfamily Cash holdings 0.112 0.113 0.041 0.080 0.143 firms. In terms of board structure, the boards of family firms differ Cash holdings 0.025 0.068 0.002 0.006 0.020 significantly from those of their nonfamily counterparts. Compared with squared Family firms 0.744 0.436 0.000 1.000 1.000 nonfamily firm boards, family firm boards are, on average, smaller, less Family control & 0.441 0.810 0.000 0.550 0.640 independent and characterized by CEO duality. influence (FCI) As shown in Table 2, the correlations of cash holdings, cash holdings Firm size (millions 2.403.496 9.833.584 85.756 248.075 1136.833 squared and MTBR are positive and strongly significant. The correlation €) between family companies and MTBR is positive and significant. We do Debt 0.170 0.155 0.048 0.135 0.250 Sales growth 0.085 0.355 − 0.062 0.047 0.160 not detect any strong correlations among variables that could cause Dividend 0.024 0.052 0.000 0.011 0.033 multicollinearity concerns. Additionally, an inspection of the variance Cash flow − 0.146 5.180 0.028 0.076 0.145 inflation factor (VIF) values shows that the correlation among the in­ Capex 0.039 0.054 0.028 0.076 0.145 dependent variables is marginal and does not alter the results. CEO duality 0.239 0.426 0.000 0.000 0.000 Independent 0.392 0.181 0.286 0.375 0.500 directors 5.2. Results Board size 9.556 3.140 7 9 11 (number of The results presented in Model 1 of Table 3 are consistent with the directors) empirical literature showing the existence of a curvilinear effect of cash Firm age (years) 36.80 33.25 15 26 45 Institutional 0.688 0.464 0.000 1.000 1.000 reserves on firm value (Nason & Patel, 2016; Deb et al., 2017; Kim & investor Bettis, 2014). Indeed, the coefficient of the variable cash holdings is Ownership 0.591 0.169 0.496 0.620 0.700 positive and statistically significant (ß = 1.555, p < 0.01), whereas the concentration sign of the variable cash holdings squared is negative and statistically Crisis 0.502 0.500 0 1 1 significant (ß = -2.008, p < 0.01). To assess the presence of the inverted Panel B: comparison of Family and Nonfamily Firms U-shaped relationship, we followed Lind and Mehlum’s (2010) pro­ Variables Family Nonfamily Difference t- cedure. In addition to verifying that both coefficients (ß1 and ß2) are Firms Firms statistic statistically significant and reflect the expected sign (ß1 must be positive, Number of firm- 1408 473 and ß2 must be negative), we tested the joint significance of the cash years holdings and cash holdings squared terms, using Sasabuchi (1980) test, MTBR 1.530 1.482 0.048 1.34 and we estimated the turning point, which needs to be located within the Tobin’s Q 0.966 0.957 0.009 0.26 ROA 0.022 0.007 0.015 1.41 data range, computed based on both the Fieller method and the Delta Cash holdings 0.117 0.097 0.020*** 3.57 method (Haans, Pieters, & He, 2016; Lind & Mehlum, 2010). As shown Cash holdings 0.027 0.020 0.007** 2.02 in Table 4, because all conditions are verified, an inverted U-shaped squared relationship does indeed exist. Firm size (millions 1.312.182 5.577.155 − 4.264.973*** − 8.97 Models 2 and 3 of Table 3 report the findings on the relationship €) Debt 0.164 0.187 − 0.023*** − 3.11 between cash holdings and firm value within nonfamily and family Sales growth 0.080 0.097 − 0.017 − 0.93 firms, respectively. Concerning the impact of the control variables in our Dividend 0.023 0.027 − 0.004** − 1.82 model, both the firm size and sales growth coefficients are negative and Cash flow 0.047 − 0.710 0.757*** 2.97 statistically significant in nonfamily firms, whereas cash flow is positive Capex 0.037 0.046 − 0.009*** − 3.50 CEO duality 0.251 0.202 0.049** 2.36 and significant. However, the firm size and sales growth coefficients are Independent 0.364 0.470 − 0.106*** − 12.22 not statistically significant in the family firms subsample. The variable directors capex is positively correlated with firm value in family firms. Consistent Board size (number 9.274 10.377 − 1.103*** − 7.22 with empirical evidence of difficulties associated with intergenerational of directors) succession (Miller, Steier, & Le Breton-Miller, 2003), our data show that Firm age (years) 37.56 34.57 2.99** 1.83 Institutional 0.625 0.870 − 0.245*** − 11.05 older family companies are related to lower firm value, suggesting investor greater preferences toward restricted SEW in older vs. founder-led firms. Ownership 0.620 0.505 0.115*** 14.43 Independent directors and institutional investors appear to lead to higher concentration firm value only within the nonfamily firm subsample. Interestingly, the Crisis 0.500 0.506 − 0.006 − 0.21 sign of the crisis variable in Models 2 and 3 of Table 3 suggests that 7 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Table 2 Correlation matrix. Variables 1 2 3 4 5 6 7 8 9 10 1 MTBR 1.000 2 Tobin’s q 0.940*** 1.000 3 ROA 0.291*** 0.159*** 1.000 4 Cash holdings 0.241*** 0.198*** − 0.183*** 1.000 5 Cash holdings squared 0.144*** 0.135*** − 0.309*** 0.889*** 1.000 6 Family firms 0.029 0.006 0.030 0.076*** 0.043** 1.000 7 Family control & 0.050** 0.031 0.044* 0.018 0.003* . 1.000 influence (FCI) 8 Firm size − 0.027 − 0.102*** 0.298*** − 0.082*** − 0.153*** − 0.123*** 0.031 1.000 9 Debt − 0.204*** − 0.040* 0.037* − 0.180*** − 0.162*** − 0.067* − 0.048* 0.183*** 1.000 10 Sales growth 0.048** 0.035 0.062*** 0.007 0.002 − 0.020 0.015 0.039* − 0.039* 1.000 11 Dividend − 0.009 − 0.046** 0.106*** 0.002 − 0.010 − 0.040* 0.049** 0.218*** 0.079*** − 0.006* 12 Cash flow − 0.002 − 0.007 0.239*** − 0.073*** − 0.086*** 0.064*** 0.012 0.212*** 0.004 0.013 13 Capex 0.066*** 0.090*** 0.043** − 0.078*** − 0.058*** − 0.076*** − 0.009 − 0.007 0.112*** 0.005 14 CEO duality 0.043** 0.037* − 0.045** 0.057*** 0.043** 0.051** 0.068*** − 0.103*** − 0.126*** 0.013 15 Independent directors − 0.006 0.041 − 0.003 − 0.081*** − 0.081*** − 0.254*** − 0.074*** 0.260*** 0.181*** 0.012 16 Board size 0.144*** 0.143*** − 0.038* 0.044** 0.004 − 0.096*** − 0.042* 0.048** 0.084*** − 0.024 17 Firm age − 0.188*** − 0.194*** − 0.044** − 0.022 − 0.011 0.100*** − 0.024 0.048** 0.017 − 0.024 18 Institutional investor 0.141*** 0.105*** 0.086*** 0.024 0.010 − 0.231*** 0.004 0.241*** 0.096*** 0.040* 19 Ownership 0.075*** 0.031 0.011 0.019 0.038* 0.296*** 0.077*** − 0.108*** − 0.062*** 0.003 concentration 20 Crisis − 0.180*** − 0.161*** − 0.031 − 0.086*** − 0.057*** − 0.005 0.026 − 0.006 0.037* − 0.211*** 11 12 13 14 15 16 17 18 19 20 11 Dividend 1.000 12 Cash flow 0.026 1.000 13 Capex 0.016 0.019 1.000 14 CEO duality − 0.029 0.012 − 0.019 1.000 15 Independent directors 0.029 0.007 0.062*** − 0.100*** 1.000 16 Board size 0.058* − 0.032 0.010 − 0.139*** 0.035* 1.000 17 Firm age 0.014 0.025 0.011 − 0.003 − 0.048** 0.039* 1.000 18 Institutional investor 0.108*** − 0.022 0.025 − 0.094*** 0.153*** 0.141*** − 0.011 1.000 19 Ownership concentration 0.005 0.008 0.057*** 0.028 − 0.109*** − 0.058*** 0.082*** − 0.067*** 1.000 20 Crisis 0.085*** 0.025 − 0.007 0.036* − 0.013 0.019 0.032 0.003 0.034 1.000 *, ** and *** indicate statistical significance at the 0.10, 0.05 and 0.01 levels, respectively. nonfamily companies suffer more from the economic downturn than Examining the subsample of family firms with high family control family companies, confirming recent empirical evidence of family firms’ and influence, the empirical findings show that the coefficient of the superior performance during crises (Minichilli et al., 2016). variable cash holdings is positive and statistically significant (ß = 1.524, Regarding the main independent variable of the research, for p < 0.01), whereas the coefficient of the variable cash holdings squared is nonfamily firms, the coefficient of the variable cash holdings is positive not statistically significant. In contrast, the relationship between cash and statistically significant (ß = 3.008, p < 0.01), whereas the coeffi­ holdings and MTBR is not significant for family firms with low family cient of the variable cash holdings squared is negative and statistically control and influence (Model 5). In Model 7 of Table 3, we repeat the significant (ß = − 7.317, p < 0.01). Similarly, in the subsample of family analyses of Models 5 and 6 by adding interaction terms between cash firms, both the variables cash holdings and cash holdings squared maintain holdings and cash holdings squared and the family control & influence (FCI) the same signs as those of their counterparts in the subsample of dummy to the regression. The results indicate that the curvilinear nonfamily firms. However, in the family firms subsample, the squared relationship between cash holdings and MTBR is more pronounced in term coefficient is lower than the coefficient of cash holdings (1.243 firms with high family control and influence, providing support for H2. vs.− 1.196). Consequently, higher cash reserves do not reduce the family Fig. 2 presents a plot showing how family firm value is related to cash firm value, but the marginal effect of increased cash holdings decreases. holdings under different family control and influence levels. In line with Model 4 of Table 3 shows that our results are robust to including a full our prediction in H2, the turning point for the family firm subsample set of interactions for cash holdings and cash holdings squared and the with high family control and influence is 0.58, after which MTBR de­ family firm dummy. Because the interpretation of moderating effects clines. In contrast, MTBR in family firms with low family control and can be challenging based solely on outcome tables, we graphically influence peaks earlier (0.33) and then steeply decreases. Thus, our illustrate the curvilinear relationship in the nonfamily and family sub­ model indicates that cash holdings are more beneficial in family firms samples (see Fig. 1). The turning point for nonfamily firms is 0.26 and with high family control and influence. then steeply decreases. Conversely, consistent with H1, the family Models 1–4 of Table 5 reveal the moderating effects of board struc­ turning point for the family firm subsample is 0.47, after which it de­ ture on the relationship between cash holdings and firm value in family clines. Because MTBR peaks afterward in family firms, the graph shows firms. The empirical results shown in Model 1 do not support H3a. One that cash holdings are more beneficial in family firms than in nonfamily potential explanation of the lack of support for H3a is that family firms firms. are generally reluctant to include outsiders on their boards and are thus Models 5–7 of Table 3 depict the moderating influence of family prone to hiring directors that may only formally comply with indepen­ control and influence and board characteristics on the relationship be­ dence requirements but who are not actually independent (Nordqvist, tween cash holdings and firm value within the sample of family firms. In 2012; Roberts, McNulty, & Stiles, 2005). Conversely, the findings re­ particular, Models 5 and 6 of Table 3 show the econometric findings on ported in Model 4 of Table 5 and in which the interaction variable CEO the link between cash holdings and firm value in family firms with low duality*Cash holdings squared is negative and statistically significant (ß = family control and influence and in those with high family control and -3.497, p < 0.05) support Hypothesis H3b. The empirical findings show influence, respectively. that separation between the board chair and CEO positions flattens the 8 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Table 3 Relationship between cash holdings and MTBR in nonfamily and family firms. (1) (2) (3) (4) (5) (6) (7) MTBR MTBR MTBR MTBR MTBR MTBR MTBR VARIABLES Full sample Nonfamily firms Family firms Interaction Low- High- Interaction FCI FCI Explanatory Cash holdings 1.555*** 3.009*** 1.243*** 3.209*** 0.052 1.524*** 0.189 (0.000) (0.000) (0.000) (0.000) (0.863) (0.000) (0.662) Cash holdings squared − 2.008*** − 7.317*** − 1.196*** − 6.377*** − 0.246 − 0.981 − 0.339 (0.000) (0.000) (0.003) (0.000) (0.501) (0.140) (0.543) Linear moderating effects Cash holdings*FFs − 2.006*** (0.001) Cash holdings*FCI 2.457*** (0.002) Nonlinear moderating effects Cash holdings squared*FFs 5.137*** (0.000) Cash holdings squared*FCI − 1.816* (0.077) Controls Family firms (FFs) − 0.070 (0.348) Family control & influence (FCI) − 0.214*** (0.001) L.MTBR 0.439*** 0.312*** 0.506*** 0.451*** 0.437*** 0.509*** 0.505*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) Firm size − 0.000 − 0.117* 0.016 − 0.002 − 0.021 0.011 0.020 (0.990) (0.052) (0.463) (0.918) (0.434) (0.759) (0.368) Debt − 0.186** − 0.094 − 0.151 − 0.176* 0.004 − 0.168 − 0.136 (0.048) (0.601) (0.174) (0.060) (0.970) (0.280) (0.219) Sales growth − 0.004 − 0.099* − 0.017 − 0.001 0.001 − 0.011 − 0.015 (0.889) (0.095) (0.566) (0.972) (0.968) (0.780) (0.615) Dividend − 0.194 0.094 − 0.352 − 0.160 − 0.368 − 0.374 − 0.367 (0.261) (0.718) (0.124) (0.349) (0.377) (0.165) (0.108) Cash flow 0.011 0.128** 0.014 0.005 − 0.029 0.052 0.002 (0.270) (0.011) (0.649) (0.618) (0.241) (0.312) (0.954) Capex 0.486** 0.416 0.456* 0.447** − 0.079 0.577 0.516** (0.029) (0.335) (0.081) (0.043) (0.752) (0.141) (0.048) CEO duality 0.037 0.109 0.003 0.045 − 0.048 0.021 0.008 (0.241) (0.117) (0.933) (0.144) (0.332) (0.652) (0.808) Independent directors 0.021 0.234* 0.044 0.053 − 0.290** 0.132 0.026 (0.791) (0.056) (0.683) (0.501) (0.022) (0.372) (0.813) Board size 0.005 0.014 − 0.003 0.006 − 0.003 − 0.002 − 0.000 (0.482) (0.214) (0.692) (0.369) (0.788) (0.891) (0.997) Firm age − 0.118* 0.190 − 0.156** − 0.113* − 0.047 − 0.206* − 0.145* (0.071) (0.178) (0.045) (0.080) (0.486) (0.079) (0.062) Institutional investor − 0.002 0.179* − 0.018 − 0.012 − 0.049 − 0.008 − 0.010 (0.937) (0.055) (0.542) (0.658) (0.151) (0.842) (0.729) Ownership concentration 0.060 − 0.071 0.087 0.158 0.016 0.015 0.086 (0.588) (0.813) (0.534) (0.160) (0.910) (0.940) (0.538) Crisis 0.054 − 0.234* 0.109* 0.043 − 0.064 0.151* 0.098* (0.306) (0.069) (0.061) (0.406) (0.335) (0.054) (0.092) Constant 1.090*** 1.678* 0.946*** 1.057*** 1.445*** 1.137** 0.928*** (0.000) (0.057) (0.007) (0.001) (0.000) (0.034) (0.008) Observations 1,881 473 1,408 1,881 372 1,036 1,408 R-squared 0.384 0.431 0.435 0.399 0.629 0.432 0.442 Adjusted R-squared 0.302 0.302 0.353 0.318 0.501 0.337 0.360 Number of Id 195 62 153 195 70 123 153 Year dummies Yes Yes Yes Yes Yes Yes Yes pval in parentheses. ***, ** and * indicate statistical significance at the 1 %, 5 % and 10 % levels, respectively. curvilinear relationship between cash holdings and MTBR and moves the 6. Robustness checks turning point to the right (as depicted in Fig. 3). Consistent with our prediction in H3b, the turning point of family firms with a high degree of As a robustness check, we repeated the baseline empirical analyses family control and influence without CEO duality is 0.65; this turning shown in Table 3 by considering two alternative measures of firm per­ point is to the right of the one for family firms with a high degree of formance: Tobin’s Q (Table 6) and ROA (Table 7). Specifically, we used family control and influence with CEO duality. an alternative market-based measure, Tobin’s Q, computed as the firm’s market value divided by total assets. The market value is the sum of the calendar year end values of the firm’s common stock, the market value of the firm’s preferred stock, the book value of the firm’s long-term debt, 9 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Table 4 Table 5 Test of an inverse U-shaped relationship between cash holdings and MTBR. Relationship between cash holdings and firm MTBR in low-/high-FCI family Dependent variable: MTBR firms. (1) (2) (3) (4) Test of joint significant of cash holdings and cash holdings squared 0.00 VARIABLES MTBR MTBR MTBR MTBR variables (p value) Low-FCI High-FCI Low-FCI High-FCI Sasabuchi-test of inverse U-shape in cash holdings (p value) 0.00 Estimated turning point 0.424 Explanatory 95 % confidence interval - Fieller method (0.377; Cash holdings 0.584 0.159 0.062 1.460*** 0.490) (0.423) (0.858) (0.839) (0.001) 95 % confidence interval - Delta method (0.370; Cash holdings squared − 0.430 0.405 − 0.261 − 0.615 0.478) (0.627) (0.794) (0.480) (0.388) Linear moderating effects Cash holdings*Independent − 1.142 4.027* directors (0.475) (0.097) Cash holdings*CEO duality − 0.818 0.805 (0.635) (0.347) Nonlinear moderating effects Cash holdings 0.207 − 4.000 squared*Independent directors (0.924) (0.389) Cash holdings squared*CEO 1.537 − 3.497** duality (0.752) (0.049) Controls L.MTBR 0.427*** 0.503*** 0.439*** 0.511*** (0.000) (0.000) (0.000) (0.000) Firm size − 0.025 0.010 − 0.020 0.011 (0.357) (0.772) (0.469) (0.765) Fig. 1. Marginal effects of cash across the full range of cash within family and Debt 0.001 − 0.179 − 0.001 − 0.142 nonfamily firms. (0.994) (0.251) (0.991) (0.363) Sales growth 0.004 − 0.010 − 0.001 − 0.006 (0.901) (0.787) (0.986) (0.884) Dividend − 0.341 − 0.346 − 0.352 − 0.363 (0.413) (0.199) (0.401) (0.176) Cash flow − 0.026 0.053 − 0.029 0.058 (0.294) (0.302) (0.246) (0.260) Capex − 0.113 0.582 − 0.076 0.501 (0.653) (0.137) (0.763) (0.201) CEO duality − 0.053 0.021 − 0.007 0.006 (0.290) (0.647) (0.938) (0.939) Independent directors − 0.183 − 0.236 − 0.299** 0.151 (0.282) (0.339) (0.020) (0.308) Board size − 0.004 − 0.003 − 0.003 − 0.002 (0.638) (0.808) (0.766) (0.891) Firm age − 0.049 − 0.203* − 0.048 − 0.266** (0.464) (0.084) (0.484) (0.026) Institutional investor − 0.047 − 0.007 − 0.047 − 0.008 (0.167) (0.858) (0.172) (0.843) Ownership concentration 0.033 − 0.022 0.021 − 0.022 (0.812) (0.916) (0.884) (0.916) Crisis − 0.065 0.151* − 0.064 0.163** (0.332) (0.054) (0.342) (0.037) Fig. 2. Moderating effect of family control and influence (FCI) on the rela­ Constant 1.472*** 1.302** 1.428*** 1.343** tionship between cash holdings and MTBR in family firms. (0.000) (0.017) (0.000) (0.013) Observations 372 1036 372 1036 R-squared 0.631 0.435 0.629 0.437 and the book value of the firm’s short-term debt (Kim & Bettis, 2014); an Adjusted R-squared 0.500 0.339 0.498 0.341 accounting proxy, ROA, is calculated as operating income divided by net Number of Id 70 123 70 123 assets (total assets minus cash and cash equivalents). The results were Year dummies Yes Yes Yes Yes largely in line with our main models. pval in parentheses. ***, ** and * indicate statistical significance at the 1 %, 5 % To ensure that our results are robust to different specifications, we and 10 % levels, respectively. applied the generalized method of moments (GMM) methodology (Arellano & Bond, 1991; Blundell & Bond, 1998). Applying the dynamic 7. Discussion panel model procedure mitigated potential endogeneity issues arising from reverse causality, measurement errors, and omitted varia­ Our study sought to understand how the presence of family owners bles/selections (Ullah, Akhtar, & Zaefarian, 2018). We reproduced the shapes the tradeoffs between precautionary and opportunistic motives main analyses of the study, shown in Table 3; the empirical findings, not for cash accumulation. Integrating the insights from the SEW perspec­ tabulated for brevity, are qualitatively identical to those of the tive (Gómez-Mejía et al., 2007; 2011) and the notions of extended and fixed-effects model. restricted SEW (Miller & Le Breton-Miller, 2014; Tsao et al., 2020) with the concept of the mixed gamble (2018, Gómez-Mejía et al., 2014) in the 10 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 opportunism (Federo, Ponomareva, Aguilera, Saz-Carranza, & Losada, 2020). 7.1. Implications for theory The contribution of the present study is three-fold. First, the explo­ ration of family firms’ cash management choices provides empirical support for the rapidly developing SEW literature that addresses the differences in both the motives and capacity of principals to influence their corporations (Chirico, Gómez-Mejia, Hellerstedt, Withers, & Nordqvist, 2020; Dou et al., 2020; Gómez-Mejía et al., 2018). Our theory highlights the importance of both the nature and salience of SEW con­ cerns in the previously unaddressed domain of cash management de­ cisions. By theorizing the family owners’ concerns as mixed gambles, we argue that SEW loss aversion can lead to both benefits and costs for the firm and its shareholders, providing a bridge for the SEW concept be­ Fig. 3. Moderating effect of CEO duality on the relationship between cash tween family and nonfamily firms (Chua et al., 2015; Miller & Le holdings and MTBR in family firms with high family control and influ­ Breton-Miller, 2014). Our empirical findings indicate support for our ence (FCI). theory and contribute to the currently evolving debate on “why, when and how SEW might have a positive impact on firm financial perfor­ domain of cash management decisions, we argue that the mixed gamble mance” (Schulze & Kellermanns, 2015: 451) by underlining the choices confronting family owners at different levels of cash holdings importance of vulnerability in the choice between the pursuit of finan­ will shape the balance between extended and restricted SEW, thereby cial and SEW concerns by family principals in their strategic decision reflecting in different financial performance outcomes. In line with making (Gómez-Mejía et al., 2018). recent studies showing the dynamic nature of SEW and financial con­ While previous studies have mainly conceptualized SEW as having a cerns in family firms (Calabrò et al., 2018; Gómez-Mejía et al., 2018), we positive effect on firm value (Cennamo, Berrone, Cruz, & Gómez-Mejía, theorize and provide empirical evidence that the perception of firm 2012; Kellermanns, Eddleston, & Zellweger, 2012), our findings vulnerability, which is herein proxied by a low level of cash holdings, contribute to the expanding area of research recognizing both positive may lead to the alignment between SEW and financial concerns, and negative effects of SEW (Kabbach de Castro, Aguilera, & Cres­ reflecting in the dominance of extended SEW outcomes. However, when pí-Cladera, 2017; Kellermanns et al., 2012; Laffranchini et al., 2020; the vulnerability is no longer a concern, i.e., high levels of cash holdings, Miller & Le Breton-Miller, 2021). In doing so, we conceptually link the family ownership may face a mixed gamble choice in which SEW con­ concepts of the mixed gamble and extended vs. restricted SEW out­ cerns are at odds with financial problems. Because of family owners’ comes. Particularly, we theorize and provide empirical evidence that preferences toward SEW concerns, restricted SEW may eventually pre­ family firms consider both SEW and financial concerns when under­ vail over extended SEW at high levels of cash holdings, changing the taking strategic decisions and that these choices can lead to both slope of the inverted U-shaped relationship between cash holdings and extended and restricted SEW outcomes depending on the perception of firm value from positive to negative. Corroborating and further nuanc­ firm vulnerability. Whereas previous studies have mainly discussed the ing earlier studies on cash management choice in family firms (Durán notion of restricted and extended SEW in relation to firm performance, et al., 2016; Laffranchini & Braun, 2014), our study provides empirical the literature applying a mixed gamble perspective has mainly examined evidence that family firms enjoy greater benefits and incur lower costs the strategic choices of family firms. Our study makes a step toward the from increasing cash holdings. integration of these two streams within the family business literature by Building on recent findings suggesting that SEW increases as the conceptualizing the mixed gamble choice as an antecedent of the bal­ extent of family firm control and influence over firms increases (Calabrò ance struck between extended and restricted SEW outcomes. By drawing et al., 2018; Zellweger et al., 2012), our results further show that the attention to the importance of firm vulnerability as a determinant of the influence of family firms on the performance effects of cash holdings is balance between SEW and financial concerns and the implications of not uniform but differs across firms depending on the degree of control these determinants for family firm outcomes (Calabrò et al., 2018; and influence exercised by the family. Particularly, our results indicate Gómez-Mejía et al., 2018) and theoretically linking it with the notions of that a high degree of family control and influence may increase both extended and restricted SEW (Miller & Le Breton-Miller, 2014), we SEW and financial concerns, reflecting in increased extended SEW provide a more nuanced explanation of the differences in the perfor­ benefits at low and medium levels of cash holdings and more pro­ mance effects of cash management decisions among family firms, of­ nounced restricted SEW benefits at high levels of cash holdings. Inte­ fering an elaboration of something that the dominant free cash flow grating insights from research on the role of board governance in cash hypothesis has not been able to explain (George, 2005; Kim & Bettis, management choices (Belkhir et al., 2014; Boubaker et al., 2015; Kuan 2014). et al., 2012) and SEW literature (Cho et al., 2018), we theorize and find Second, our study also contributes to the rapidly evolving research some empirical support for the notion that board governance, particu­ on family business heterogeneity (Daspit et al., 2021; Nason et al., 2019) larly the separation between the CEO and board chair positions, can by showing that the tradeoffs between SEW and financial concerns are constitute an effective instrument to mitigate the restricted SEW out­ not identical across family firms but vary depending on the degree of comes derived from family opportunism in firms with a high degree of family control and influence and the corporate governance arrange­ family control and influence. Overall, our results indicate that the pos­ ments within a firm. In particular, our study shows that greater control itive effect of family ownership is most pronounced under a high level of and family influence in a firm can amplify both value creation and value family control and influence and when the board chair and CEO roles are destruction in a firm. We then draw attention to the role of corporate separated. Contrary to some prior studies arguing for the substitution governance and, more specifically, to the separation of the board chair effect between concentrated ownership and board monitoring and CEO positions in firms as a mechanism to reduce the negative effects (Desender, Aguilera, Crespi, & GarcÍa-cestona, 2013), our findings of family opportunism and preserve the benefits generated through indicate that family control and influence and board monitoring could family ownership (Cho et al., 2018); in addition, we highlight the be complementary when board monitoring is directed at limiting family particular importance of this separation of positions in the context of a 11 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Table 6 Relationship between cash holdings and Tobin’s Q in nonfamily and family firms. (1) (2) (3) (4) (5) (6) (7) VARIABLES Tobin’s q Tobin’s q Tobin’s q Tobin’s q Tobin’s q Tobin’s q Tobin’s q Full sample Nonfamily firms Family firms Interaction Low-FCI High-FCI Interaction Explanatory Cash holdings 1.397*** 3.458*** 1.195*** 2.860*** − 0.234 1.429*** 0.279 (0.000) (0.000) (0.000) (0.000) (0.453) (0.000) (0.511) Cash holdings squared − 1.627*** − 8.609*** − 0.898** − 5.810*** 0.297 − 0.727 − 0.095 (0.000) (0.000) (0.021) (0.000) (0.431) (0.262) (0.862) Linear moderating effects Cash holdings*FFs − 1.743*** (0.002) Cash holdings*FCI 2.154*** (0.006) Nonlinear moderating effects Cash holdings squared*FFs 4.884*** (0.000) Cash holdings squared*FCI − 1.771* (0.078) Controls Family firms (FFs) − 0.043 (0.560) Family control & influence (FCI) − 0.187*** (0.004) L.Tobin’s q 0.432*** 0.300*** 0.504*** 0.438*** 0.410*** 0.500*** 0.504*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) Firm size − 0.030* − 0.108** − 0.017 − 0.037** − 0.062** 0.000 − 0.014 (0.084) (0.045) (0.425) (0.034) (0.030) (0.995) (0.512) Debt 0.164* 0.192 0.188* 0.172* 0.457*** 0.094 0.201* (0.082) (0.283) (0.083) (0.064) (0.000) (0.539) (0.064) Sales growth − 0.002 − 0.091 − 0.017 0.000 − 0.018 − 0.010 − 0.016 (0.947) (0.126) (0.542) (0.997) (0.574) (0.788) (0.565) Dividend − 0.162 0.074 − 0.324 − 0.131 − 0.380 − 0.338 − 0.337 (0.344) (0.775) (0.148) (0.441) (0.382) (0.200) (0.132) Cash flow − 0.001 − 0.003 − 0.003 − 0.001 − 0.039 0.027 − 0.013 (0.732) (0.385) (0.921) (0.725) (0.138) (0.590) (0.683) Capex 0.129 0.185 0.143 0.087 − 0.219 0.182 0.187 (0.561) (0.670) (0.575) (0.693) (0.395) (0.636) (0.463) CEO duality 0.051* 0.160** − 0.001 0.060* − 0.109** 0.013 0.003 (0.099) (0.020) (0.967) (0.051) (0.036) (0.776) (0.923) Independent directors 0.090 0.298** 0.153 0.120 − 0.206 0.229 0.139 (0.253) (0.015) (0.151) (0.126) (0.122) (0.112) (0.191) Board size 0.003 0.002 − 0.000 0.005 − 0.008 − 0.001 0.002 (0.630) (0.835) (0.970) (0.477) (0.439) (0.924) (0.781) Firm age − 0.087 0.277* − 0.135* − 0.088 − 0.083 − 0.213* − 0.126* (0.168) (0.051) (0.075) (0.163) (0.241) (0.063) (0.095) Institutional investor − 0.023 0.232** − 0.032 − 0.029 − 0.036 − 0.020 − 0.027 (0.397) (0.014) (0.254) (0.297) (0.317) (0.595) (0.341) Ownership concentration − 0.051 − 0.014 − 0.059 0.021 0.015 − 0.176 − 0.054 (0.643) (0.964) (0.667) (0.850) (0.916) (0.379) (0.695) Crisis 0.082 − 0.271** 0.141** 0.073 − 0.006 0.181** 0.132** (0.118) (0.035) (0.014) (0.158) (0.933) (0.019) (0.021) Constant 1.084*** 0.937 0.998*** 1.130*** 1.728*** 1.060** 0.984*** (0.000) (0.250) (0.004) (0.000) (0.000) (0.044) (0.004) Observations 1,884 474 1,410 1,884 375 1,035 1,410 R-squared 0.342 0.407 0.416 0.358 0.548 0.411 0.421 Adjusted R-squared 0.255 0.273 0.331 0.271 0.392 0.313 0.335 Number of Id 195 62 154 195 71 123 154 Year dummies Yes Yes Yes Yes Yes Yes Yes pval in parentheses. ***, ** and * indicate statistical significance at the 1 %, 5 % and 10 % levels, respectively. high degree of family control and influence. The empirical results pursuit of restricted SEW gains, and these effects are particularly strong regarding the optimal board composition in family businesses have been under a high degree of family control and influence. largely inconclusive (Bammens et al., 2011). Our findings explain the Finally, our paper enlarges the growing body of finance literature conflicting evidence suggesting that boards of directors and ownership examining the performance effects of cash management choices by can act as either substitute or complements depending on the balance drawing attention to how heterogeneity in owners’ frames of reference between SEW and financial concerns. When the latter are aligned, family shape the balance between precautionary and opportunistic motives of ownership can act as a governance mechanism allowing the firm to cash allocation choices. Despite the extensive empirical and theoretical benefit from accumulating cash holdings. However, when financial and research in finance explaining corporate cash policy choices, most of the SEW concerns are at odds, presenting a mixed gamble choice for family extant studies on the topic are rooted in the free cash flow hypothesis principals, effective board governance can reduce the family owners’ (Jensen, 1986) with an implicit assumption of uniformity of 12 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 Table 7 Relationship between cash holdings and ROA in nonfamily and family firms. (1) (2) (3) (4) (5) (6) (7) VARIABLES ROA ROA ROA ROA ROA ROA ROA Full sample Nonfamily firms Family firms Interaction Low-FCI High-FCI Interaction Explanatory Cash holdings 0.337*** 0.291*** 0.349*** 0.308*** 0.087 0.748*** − 0.176* (0.000) (0.000) (0.000) (0.004) (0.400) (0.000) (0.055) Cash holdings squared − 0.642*** − 0.574*** − 0.650*** − 0.792*** 0.162 − 1.739*** 0.389*** (0.000) (0.000) (0.000) (0.000) (0.203) (0.000) (0.001) Linear moderating effects Cash holdings*FFs 0.052 (0.662) Cash holdings*FCI 1.393*** (0.000) Nonlinear moderating effects Cash holdings squared*FFs 0.152 (0.434) Cash holdings squared*FCI − 2.957*** (0.000) Controls Family firms (FFs) − 0.023 (0.129) Family control & influence (FCI) − 0.102*** (0.000) L.ROA 0.401*** 0.332*** 0.408*** 0.395*** 0.181*** 0.443*** 0.364*** (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) Firm size 0.006 0.014** 0.005 0.006 0.016* 0.005 0.011** (0.102) (0.028) (0.303) (0.119) (0.091) (0.410) (0.020) Debt − 0.013 0.029 − 0.037 − 0.013 − 0.121*** 0.014 − 0.047** (0.504) (0.185) (0.157) (0.501) (0.004) (0.609) (0.045) Sales growth 0.014*** 0.002 0.022*** 0.014*** 0.001 0.019*** 0.015** (0.008) (0.749) (0.001) (0.008) (0.924) (0.006) (0.013) Dividend − 0.048 − 0.053* − 0.046 − 0.048 − 0.073 − 0.047 − 0.037 (0.177) (0.097) (0.384) (0.176) (0.614) (0.324) (0.438) Cash flow − 0.001 − 0.000 − 0.009 − 0.001 0.014 0.008 − 0.002 (0.221) (0.402) (0.214) (0.202) (0.141) (0.403) (0.813) Capex 0.224*** 0.166*** 0.192*** 0.217*** 0.081 0.069 0.176*** (0.000) (0.002) (0.002) (0.000) (0.382) (0.318) (0.001) CEO duality − 0.009 0.001 − 0.009 − 0.008 0.058*** − 0.013* − 0.008 (0.161) (0.947) (0.233) (0.218) (0.001) (0.098) (0.240) Independent directors − 0.016 0.001 − 0.039 − 0.015 − 0.071 0.010 − 0.017 (0.328) (0.959) (0.118) (0.349) (0.111) (0.706) (0.449) Board size 0.002* 0.000 0.004** 0.002* 0.004 0.003 0.003* (0.088) (0.949) (0.043) (0.076) (0.191) (0.105) (0.071) Firm age − 0.013 − 0.006 − 0.030* − 0.015 − 0.010 − 0.044** − 0.032** (0.320) (0.743) (0.088) (0.234) (0.671) (0.027) (0.044) Institutional investor 0.006 0.012 0.001 0.005 − 0.002 − 0.006 − 0.003 (0.317) (0.314) (0.871) (0.380) (0.840) (0.368) (0.621) Ownership concentration 0.038* 0.010 0.036 0.042* − 0.037 0.070* 0.065** (0.090) (0.787) (0.267) (0.072) (0.446) (0.051) (0.027) Crisis − 0.009 − 0.015 − 0.004 − 0.009 − 0.025 − 0.011 − 0.012 (0.393) (0.320) (0.783) (0.388) (0.269) (0.408) (0.319) Constant − 0.078 − 0.196* − 0.013 − 0.052 − 0.128 − 0.008 − 0.048 (0.174) (0.050) (0.872) (0.373) (0.331) (0.933) (0.505) Observations 1,889 477 1,412 1,889 374 1,038 1,412 R-squared 0.468 0.261 0.212 0.471 0.336 0.407 0.362 Adjusted R-squared 0.398 0.095 0.098 0.400 0.106 0.308 0.268 Number of Id 194 62 154 194 71 123 154 Year dummies Yes Yes Yes Yes Yes Yes Yes pval in parentheses. ***, ** and * indicate statistical significance at the 1 %, 5 % and 10 % levels, respectively. shareholders’ interests and influence on their firms. However, the accumulation in family firms. Given the ongoing debate about when and assumption that shareholders’ only interest is to maximize the return on how the accumulation of cash resources can benefit firm performance their capital and generally to treat them as “diversified and disinter­ (Weidemann, 2018), a behavioral approach accounting for the hetero­ ested” is in sharp contrast with the composition of firm ownership geneity in ownership identities may constitute a critical missing piece to worldwide, thereby presenting a variety of distinct and identifiable understand the behavioral motives behind cash management choice in owners (Federo et al., 2020). In line with emerging studies addressing both family and nonfamily firms. the inherent limitations of the dominant free cash flow hypothesis in the context of family firms (e.g., Baixauli-Soler et al., 2021; Belda-Ruiz et al., 7.2. Implications for practice 2021; Comino-Jurado et al., 2021), we introduce the SEW perspective as a relevant lens to explain the distinct performance outcomes of cash Given the current economic conditions, we believe that our findings 13 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 could be of practical interest to both family and nonfamily shareholders. employ direct measures of board task performance to better capture In particular, our results show that the accumulation of cash holdings board processes and behaviors and therefore provide a more could create value in listed family firms and that this value is maximized fine-grained understanding of board influence on family firm outcomes under conditions of high firm vulnerability and when the opportunities (c.f. Arzubiaga, Kotlar, De Massis, Maseda, & Iturralde, 2018; Kanadlı, for family opportunism are restricted. We thus recommend twofold Torchia, Gabaldon, & Calabrò, 2020). Whereas this approach has been attention when designing governance in family firms. First, we highlight mostly applied in the context of private family firms (Zattoni, Gnan, & the need to protect family members from themselves, which could be Huse, 2015), it can also be potentially useful for studying the impact of related to the actual size and composition of the nuclear family. For board monitoring in listed family firms. instance, the presence of more family branches or multiple family Third, this study explored the effects of family ownership on a single- leaders can amplify the likelihood of inefficient cash allocation choices. country sample. While the Italian context is particularly suitable for our Second, we underscore the need to protect nonfamily shareholders from study, future research could empirically examine the applicability of our family members and balance the goals and incentives of different groups conceptual model to other institutional contexts. Fourth, due to data of investors to maximize firm value. In both situations, strengthening the limitations, our empirical analyses do not account for firms’ business board monitoring function by separating the CEO and board chair po­ group affiliation, which has been found to affect both performance and sitions can serve as a corporate governance mechanism that effectively cash holdings (Cai, Zeng, Lee, & Ozkan, 2016; Lensink & Van der Molen, limits family opportunism. Thus, having a better knowledge of share­ 2010). Considering how business group affiliation influences cash holders’ behaviors can help in a more effective, tailored, and transparent management decisions in family firms and the implications of these af­ governance design. Such a design should rely on the assumption that filiations for firm value can nuance a further understanding of the nonfamily shareholders should and could take significant advantage of contextual determinants of cash management mixed gambles and family control, especially if the family has a considerable degree of therefore constitute an interesting and relevant avenue for future control and influence over the business and when governance is con­ research. Furthermore, our research design does not distinguish be­ structed to avoid excessive concentration of power in the hands of a CEO tween family firms and lone founders that present distinct social con­ serving as a chair of the board. Under these circumstances, increasing texts of ownership (Miller et al., 2011) and may entail differences in cash cash holdings will turn into an increase in firm value, financial flexi­ allocation strategies. In addition, like most studies on governance and bility, and a balance between control and opportunism. Our results cash policies, our empirical findings may be subject to endogeneity is­ could also have considerable implications for unlisted family firms, sues. Because it is difficult to find appropriate instrumental variables where the absence of minority nonfamily investors potentially amplifies that are useful to address endogeneity problems in the literature, we are the trade-offs between the advantages and disadvantages of increased aware that we cannot wholly eliminate concerns about causality effects cash holdings. In those cases, an effective governance design promises to and unobservable omitted variables (Miller, Le Breton-Miller, Amore, be even more crucial to avoid inefficient cash allocations or even abuses. Minichilli, & Corbetta, 2017). Finally, we do not account for potential Furthermore, the arguments provided in this article could help in­ interdependencies between cash allocation choices and external vestors assess the underlying motives behind firms’ cash holding pol­ financing decisions. Recent research has suggested that cash manage­ icies. This becomes especially important in light of increased hedge fund ment choices comprise part of the overall financing strategy of the firm investor activism as corporate cash policies constitute one of the most and thus are interrelated with debt-management choices (Brick & Liao, frequent targets of activists’ campaigns (Coffee & Palia, 2016). For 2017). example, cash buybacks and increased dividends are two of the most Our findings also open up several additional opportunities for future frequent demands among activist investors (Loop, 2016), with the cen­ research. One natural step forward could be an investigation of the tral argument that such policies help to discipline management and ul­ dynamics between family owners and other significant shareholders. timately maximize shareholder capital. However, our study suggests Previous literature shows that controlling shareholders such as corpo­ that this rationale may not fully apply to the context of listed family rations, institutional owners, and the state differ considerably in their firms, which have long resisted this trend by holding greater cash re­ incentives and influence on their firms (Cannella, Jones, & Withers, serves than nonfamily firms. We thus encourage investors to carefully 2015; Collin et al., 2017; Federo et al., 2020). Thus, future studies could consider firm ownership structure when assessing corporate cash extend our theory by considering the constellation of multiple owners policies. and their heterogeneous preferences in explaining the performance ef­ fects of cash management choices. Another interesting avenue could be 7.3. Limitations and future research to further probe the boundary conditions of the SEW perspective by distinguishing between different types of family control arrangements Our paper is not without limitations. First, our findings should be such as family-managed vs. family-owned firms (Tsao et al., 2020) or interpreted with caution as the data do not allow us to measure SEW weak/strong family-owned firms (Alessandri et al., 2018); relatedly, our directly and model it as an interpretive proxy of a single dimension of findings indicate that older firms have lower firm value than younger SEW, namely, family control and influence. For family firms’ cash firms, which suggests that the balance between restricted and extended allocation choices, by disregarding alternative explanations, such as SEW may differ between successor control vs. founder-controlled family greater growth orientation (Miller, Le Breton-Miller, & Lester, 2011) or firms. Thus, future studies could investigate how different types of the pursuit of a long-term investment strategy (Lumpkin & Brigham, family firms differ in their preferences for restricted and extended SEW, 2011), future studies could instead test our theory by employing direct ultimately shaping the performance effects of cash holdings. Finally, multidimensional SEW measures that have been developed and vali­ cash management choices are unlikely to be made in silos with other dated in family business research (see, for example, Berrone et al., 2012; strategic decisions and are embedded in the firm context. We thus Debicki, Kellermanns, Chrisman, Pearson, & Spencer, 2016; Hauck, encourage future studies to nuance our theory further by examining the Suess-Reyes, Beck, Prügl, & Frank, 2016). performance effects of cash allocation choices in family firms with Second, in line with the board governance literature (Johanson & different levels of debt financing and focusing more on the overall Østergren, 2010), our study assumes that it is plausible for independent financial structure of the company and its competitive environment. directors and boards with the board chair and CEO roles separated to This will be particularly relevant in the post-pandemic recovery that exercise more vigilant monitoring. However, some studies have con­ firms will need to experience and to absorb and restructure financing tested this assumption by questioning the effectiveness of independent choices that firms have been forced to undertake (Amore, Quarato, & directors in monitoring and protecting shareholder wealth (Boivie, Pelucco, 2021). In this respect, we continue to believe that behavioral Bednar, Aguilera, & Andrus, 2016). We thus encourage future studies to theories can have much to say compared to traditional agency 14 D.R. Cambrea et al. Journal of Family Business Strategy 13 (2022) 100466 arguments in both listed and private firms. While cash management Bammens, Y., Voordeckers, W., & Van Gils, A. (2011). Boards of directors in family businesses: A literature review and research agenda. International Journal of choices can indeed be more pronounced in listed firms, private com­ Management Reviews, 13(2), 134–152. https://doi.org/10.1111/j.1468- panies promise to have additional specific issues related to the more 2370.2010.00289.x restricted ownership base and the less articulated governance structure. Bates, T. W., Kahle, K. M., & Stulz, R. M. (2009). Why do U.S. firms hold so much more cash than they used to? The Journal of Finance, 64(5), 1985–2021. https://doi.org/ 10.1111/j.1540-6261.2009.01492.x Bauweraerts, J., Diaz-Moriana, V., & Arzubiaga, U. (2020). A mixed gamble approach of 7.4. Conclusion the impact of family management on firm’s growth: A longitudinal analysis. European Management Review. https://doi.org/10.1111/emre.12359 In concluding, our study has sought to provide a theoretical under­ Bauweraerts, J., Vandernoot, J., & Buchet, A. (2020). Family firm heterogeneity and tax aggressiveness: A mixed gamble approach. Canadian Journal of Administrative pinning of how and why family firms differ in their management stra­ Sciences/Revue Canadienne des Sciences de l’Administration, 37(2), 149–163. https:// tegies and the implications of these choices for firm outcomes. In doi.org/10.1002/cjas.1528 business research and practice, cash management is a relevant and Belda-Ruiz, M., Sánchez-Marín, G., & Baixauli-Soler, J. S. (2021). Influence of family- centered goals on dividend policy in family firms: A socioemotional wealth controversial issue that has seldom been examined through the lens of approach. International Entrepreneurship and Management Journal, 1–24. https://doi. ownership. We hope that our study will prompt further research and org/10.1007/s11365-021-00741-x debate that can advance our understanding of the distinct identity of Belghitar, Y., & Khan, J. (2013). Governance mechanisms, investment opportunity set and SMEs cash holdings. Small Business Economics, 40, 59–72. https://doi.org/ family owners in this critical strategic domain. 10.1007/s11187-011-9366-z Belkhir, M., Boubaker, S., & Derouiche, I. (2014). Control–ownership wedge, board of Author Statement directors, and the value of excess cash. Economic Modelling, 39, 110–122. https://doi. org/10.1016/j.econmod.2014.02.026 Berrone, P., Cruz, C., & Gómez-Mejía, L. R. (2012). Socioemotional wealth in family Domenico Rocco Cambrea: Data collection, Methodology, Analyses firms: Theoretical dimensions, assessment approaches, and agenda for future & Results, Review & Editing. research. Family Business Review. https://doi.org/10.1177/0894486511435355 Berrone, P., Cruz, C., Gómez-Mejía, L. R., & Larraza-Kintana, M. (2010). Socioemotional Yuliya Ponomareva: Writing - Original Draft, Theory building, wealth and corporate responses to institutional pressures: do family-controlled firms Conceptualization, Review & Editing. pollute less? Administrative Science Quarterly, 55(1), 82–113. https://doi.org/ Daniel Pittino: Writing - Review & Editing, Project administration. 10.2189/asqu.2010.55.1.82 Bertrand, M., & Schoar, A. (2006). The role of family in family firms. The Journal of Alessandro Minichilli: Review & Editing. Economic Perspectives, 20(2), 73–96. https://doi.org/10.2307/30033651 Bettinelli, C. (2011). Boards of directors in family firms: An exploratory study of Acknowledgments structure and group process. Family Business Review, 24(2), 151–169. https://doi. org/10.1177/0894486511402196 Bianco, M., Ciavarella, A., & Signoretti, R. (2015). Women on corporate boards in Italy: We are very grateful to the editor-in-chief Torsten Pieper, the asso­ The role of family connections. Corporate Governance an International Review, 23(2), ciate editor Mathew Hughes and two anonymous reviewers for their 129–144. https://doi.org/10.1111/corg.12097 Bigelli, M., & Sánchez-Vidal, J. (2012). Cash holdings in private firms. Journal of Banking constructive challenges and helpful comments during the review pro­ & Finance, 36(1), 26–35. https://doi.org/10.1016/j.jbankfin.2011.06.004 cess. We also thank Sven-Olof Collin, Vanessa Diaz-Moriana, Eleunthia Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic Ellinger, Miguel Ángel García Cestona and Ryan Federo for their panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/ 10.1016/S0304-4076(98)00009-8 insightful advice and suggestions. Yuliya Ponomareva gratefully ac­ Boivie, S., Bednar, M. K., Aguilera, R. V., & Andrus, J. (2016). Are boards designed to knowledges financial support from the Ministry of Science and Inno­ fail? The implausibility of effective board monitoring. Academy of Management vation, State Research Agency (Project reference number PID2020- Annals, 10(1), 319–407. https://doi.org/10.5465/19416520.2016.1120957 115018RB- C32). Boubaker, S., Derouiche, I., & Nguyen, D. K. (2015). 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