CORPORATE GOVERNANCE AND CASH HOLDINGS: Evidence from Family Controlled and Non-Family Business in Pakistan


In this paper we examine corporate governance and its impact on firm’s cash holdings in the context of the family-controlled firms and stand-alone firms in Pakistan, employing several measures of corporate governance. Empirical results show that family-controlled businesses hold more cash as compared to stand-alone firms, possibly alluding to the more prevailing agency problems between controlling shareholders and the minority shareholders. Results further shows that managerial ownership has a significant negative relationship with corporate cash holdings; big-five ownership is positively related to cash holdings while board size, CEO duality and institutional shareholders have no effect on firm’s cash holdings. Overall, these results are consistent with the agency predictions of Jensen and Mackling (1986) that higher managerial stakes provide managers with incentives to hold optimum levels of cash holdings. Results also support the view that institutional activism is low in Pakistan’s market providing institutional shareholders less incentives to monitor firm’s financial decisions.

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