Control-ownership wedge, board of directors, and the value of excess cash

Mohamed Belkhir, Sabri Boubaker, Imen Derouiche

    Research output: Contribution to journalArticlepeer-review

    44 Citations (Scopus)


    This study investigates the effects of the separation of control and ownership on the value of cash holdings in publicly listed French firms. It also sheds light on the role of board independence in such a relation. Theory suggests that investors are more likely to discount the value of excess cash held by firms with low corporate governance. Using the valuation regression of Fama and French (1998), empirical results show that the value of excess cash holdings decreases dramatically with the separation of control and cash-flow rights of the controlling shareholder. This value discount is, however, less pronounced in firms with more independent boards (i.e., boards with more independent directors and separate chief executive officer and chair positions). Our empirical findings support the argument that excess cash contributes less to firm value when minority shareholders are more likely to be expropriated by controlling shareholders. Independent boards seem to be effective in mitigating investors' concerns about the use of excess cash. Overall, the results provide compelling evidence that cash valuation is largely influenced by corporate governance quality in a concentrated ownership setting.

    Original languageEnglish
    Pages (from-to)110-122
    Number of pages13
    JournalEconomic Modelling
    Publication statusPublished - Apr 2014


    • Board of directors
    • Cash holdings
    • Control-ownership wedge
    • Corporate governance
    • Firm value

    ASJC Scopus subject areas

    • Economics and Econometrics


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