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Journal of Management & Governance

, Volume 22, Issue 1, pp 31–54 | Cite as

Ownership structure and investment-cash flow sensitivity

  • Imen Derouiche
  • Majdi Hassan
  • Sarra Amdouni
Article

Abstract

This study investigates the effect of ownership structure on the use of cash flow in financing corporate investments—the investment-cash flow sensitivity—in a concentrated ownership context. Using a sample of 6797 French listed firms from 2000 to 2013, results show that investment-cash flow sensitivity decreases with the cash-flow rights of the controlling shareholder and increases with the separation of its cash-flow and control rights (excess control rights). Firms are, thus, less likely to use cash flow in investments when the interests of controlling shareholders are aligned with those of minority shareholders. However, they appear to use considerable internal funds for their investments when they have severe agency problems, driven by excess control rights of the controlling shareholders. Overall, our findings help advance the understanding of the role of agency relationship in shaping corporate financial policy.

Keywords

Ownership structure Excess control rights Investment-cash flow sensitivity 

JEL Classification

G32 G34 M41 

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Unité de recherche CREAUniversity of LuxembourgLuxembourgLuxembourg
  2. 2.DEFIESSEC TunisTunisTunisia

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