The Effects of Family Ownership Structure on Firm’s Cash Flow Sensitivity of Cash: “Evidence from Euro Zone”

We investigate the impact of family ownership structure on the firm’s cash-cash flow sensitivity level in the Euro zone, contributing new evidence for the previous contradictory results about cash flow sensitivity of cash (CFSC). We find that family firms have a lower cash-cash flow sensitivity level than their non-family counterparts due to the peculiar characteristics of these firms having fewer agency costs and being controlled by family. Considering family firms data, we find a higher level of CFSC for family firms with dominant shareholders as the presence of dominant shareholder, which has negative effects on agency costs, income un-certainty and productivity shocks. On the contrary, this sensitivity level is lower for family firms without dominant shareholders but second large shareholder(s), due to a monitoring tendency.