Family control and optimal cash holding adjustment speed: evidence from African listed firms
Adeolu O. Adewuyi, Idorenyin J. OkonPurpose
This study investigates how family control influences the speed at which firms adjust toward their optimal cash holding levels, with a focus on listed companies in African capital markets. It explores whether family-controlled firms exhibit different liquidity behaviors under varying generational, financial, and institutional conditions.
Design/methodology/approach
The study employs a dynamic panel data framework using two-step system generalized method of moments estimators. The sample includes 270 listed firms across six African countries from 2012 to 2023. The analysis captures the effects of family ownership, firm age, financial constraints, and investor protection on the speed of cash adjustment, with robustness checks conducted to strengthen the baseline results.
Findings
The results show that family-controlled firms adjust their cash holdings more slowly than non-family firms, reflecting conservative strategies driven by risk aversion and control motives. Younger family firms adjust somewhat more quickly than older family firms, indicating modest founder- and growth-driven flexibility, though the premium is smaller than commonly assumed in the family-firm literature. Financial constraints sharply accelerate cash holding adjustment speed in family firms, suggesting that survival pressures override conservative strategies when external financing is scarce. In contrast, stronger investor protection substantially slows adjustment, indicating that external institutional oversight substitutes for, rather than reinforces, internal liquidity discipline. Country-level robustness tests confirm that institutional and market contexts significantly moderate these relationships.
Originality/value
This study contributes to the corporate finance literature by contextualizing the dynamics of cash adjustment speed within African emerging markets. It offers novel insights into how ownership structure and institutional quality shape liquidity behavior, providing implications for policymakers and investors regarding the design of governance and financial policies suited to varying ownership and institutional settings.