Why Do Family Firms Hold Cash? Agency Conflicts and Valuation Perspectives

Abstract

This study aims to examine whether family firms differ from nonfamily firms in their propensity to save cash, particularly in response to new investment opportunities, and to assess how investors value the cash holdings of family versus nonfamily firms in light of potential agency concerns. The study uses the context of Jordan—a small emerging market characterized by weak investor protection and the dominance of family-managed firms, a setting that exacerbates principal–principal conflicts. Employing treatment effects and propensity score matching estimation techniques to address the endogeneity between family control and firm cash holdings, this study finds that family enterprises maintain significantly higher cash reserves than their nonfamily counterparts. Moreover, the analysis finds that family firms do not exhibit a significantly greater propensity to save cash in response to new investment opportunities, implying that financial flexibility concerns are not significantly different between family and nonfamily firms. However, the results further demonstrate that investors assign a higher valuation to cash held by nonfamily firms, suggesting that investors associate family control with potential agency conflicts regarding the deployment of cash reserves.

1. Introduction

Cash holdings have been the subject of considerable research because they provide firms with the financial flexibility to respond in a timely fashion to unexpected changes in their cash flows or set of investment opportunities (Almeida et al. 2014; Denis 2011; Weidemann 2018). The literature focuses on whether corporations have optimal cash holdings and their determinants (Gao et al. 2013; Guney et al. 2007; Martínez-Sola et al. 2018; Opler et al. 1999; Potì et al. 2020), and the role of cash holdings in enhancing their financial flexibility (Almeida et al. 2014; Bates et al. 2018; Goodell et al. 2021). The literature shows that value-maximizing firms accumulate cash for precautionary and transaction motives. In the presence of financial frictions, firms face states of the world where external funds will be costly or unavailable (Myers and Majluf 1984); hence, firms accumulate cash to meet their unanticipated contingencies (Almeida et al. 2014; Opler et al. 1999). The precautionary and transactional motives to hold cash can be particularly important for family firms, as they desire to preserve the family legacy for future generations (Durán et al. 2016; Lozano 2015; Lozano and Durán 2017). In addition, family firms may have other non-financial “socioemotional wealth” motives when determining their cash holdings (Maquieira et al. 2025). However, the deployment of cash holdings can be a source of agency conflicts (Jensen 1986), and hence shareholders (minority shareholders) have incentives to limit cash at the managers’ (controlling shareholders) discretion (Dittmar et al. 2003; Harford et al. 2008). This study focuses on the impact of family control on the firm’s decision to accumulate cash using firm-level data of industrial Jordanian firms listed on the Amman Stock Exchange (ASE), a small emerging market with weak investor protection and where agency conflicts arise mostly between controlling and minority shareholders.

The empirical evidence regarding the impact of family control on cash holdings is inconclusive due to the complexity of the family firm incentives. On one hand, family firms’ pursuit to save large cash holdings can be a strategic decision to preserve their flexibility, reduce risk, and avoid external control (Durán et al. 2016; Lozano 2015; Lozano and Durán 2017; Yaman and Lozano 2025). However, there are private benefits from accumulating cash and spending it sub-optimally, which can motivate family firms to save cash (Harford et al. 2008). In addition, the complexity of this issue increases once the level of investor protection is considered. For example, Harford et al. (2008) note that country-level investor protection and firm-level limitations to shareholders’ rights interact. Entrenched managers in firms operating in countries with poor investor protections accumulate cash and pay low dividends with relative impunity, hence allowing firms to accumulate cash with little investor reaction (Akhtar et al. 2025; Chen et al. 2014; Dittmar et al. 2003; Iskandar-Datta and Jia 2014; Seifert and Gonenc 2018). However, in a market such as the US with strong investor protection, managers choose to spend the cash quickly on acquisitions or capital expenditures (Harford et al. 2008; Liu 2011) to avoid drawing the attention of market participants. Moreover, the literature indicates that firms with controlling shareholders—often families—who have more diversified portfolios tend to accumulate less cash (Mura 2025). Hence, the empirical evidence regarding the impact of family control on cash is inconclusive and fails to establish consistent results due to the complexity of family firm incentives and country contexts.

Contrary to many developed markets, Jordanian listed firms are not widely held and have ultimate controlling shareholders (Tayem 2022). Family ownership and control, whether direct or indirect, dominate the structure of publicly traded firms in Jordan (Bino et al. 2016). Hence, the agency problems in the Jordanian market are not driven by the classical manager–shareholder conflicts but rather by principal–principal (controlling–minority) shareholder conflicts. Family owners typically secure control over their firms by holding substantial equity stakes, either directly or through indirect ownership structures (see Tayem 2022 for a detailed discussion). Such ownership positions allow family owners to maintain a majority representation on the board of directors and, consequently, to exert effective influence over management decisions (see Bino et al. 2016 for further details). Although Jordanian listed firms share this feature with listed firms from other developing countries (Gul et al. 2020; Jebran et al. 2019; Kuan et al. 2011; Liu et al. 2015; Moolchandani and Kar 2022; Thai and Hoang 2024), their ownership structures are characterized by several unique aspects. The state has little participation in the Jordanian corporate sector, as state-controlled firms do not represent more than 8% of listed firms (Tayem 2022), while the state in other developing markets represents a substantial number of listed firms and/or exercises substantial control (Liu et al. 2015). Furthermore, foreign investors have considerable ownership stakes in Jordanian corporate assets, as foreign firms represent 25% of listed firms (Tayem 2022). In other words, Jordanian listed firms are mainly classified as family and nonfamily/foreign firms, with a small number of firms that are classified as state-controlled firms. In addition, in Jordanian family firms, family members manage the firm or exert a large influence over the management in the rare case of hiring a professional management team (Tayem 2015).

Therefore, this study examines the impact of family control on cash holdings using the case of Jordan. Specifically, this study poses the following question: What are the motives of family firms to accumulate cash? Do family firms hold more cash balances compared to nonfamily firms? Is the financial flexibility motive to accumulate cash stronger for family firms or nonfamily firms? What is the impact of holding cash by family firms on firm value? To answer these questions, the extant study analyses the behavior of industrial Jordanian companies listed on the Jordanian Stock Exchange, the Amman Stock Exchange (ASE), during the study period 2013–2024 by developing a cash model augmented with a family control indicator. The study employs the frameworks of agency, trade-off, and pecking order/financing hierarchy to guide the choice of control variables. This study examines the endogenous choice of family control and cash holdings using the treatment effect and matching estimation methods.

This study contributes to the extant literature in several ways. The findings of this study contribute to the literature on family firms and cash holdings (Ahmed and Tahir 2024; Block and Eroglu 2024; Cambrea et al. 2022; Durán et al. 2016; Gul et al. 2020; Liu et al. 2015; Lozano 2015). It examines a context where family firms are dominant in number and are managed by their founders (or descendants); hence, controlling–minority shareholder conflicts dominate. Furthermore, it shows that, in this context, family firms accumulate significantly large cash levels and examines if these differences are attributed to precautionary or agency motives. This issue is interesting because of the inconclusive results of the research on the advantages and disadvantages of family control (Anderson et al. 2012; Andres 2011; Moolchandani and Kar 2022). Furthermore, the extant study contributes to the growing number of studies that examine the impact of ownership structures on various financial decisions, including cash holdings, utilizing the context of Middle East and North Africa (MENA) countries by using a refined classification of firm identity. Studies from the MENA region usually rely on direct ownership percentages to compute ownership concentration and to classify firm identity (Alkhataybeh et al. 2022; Elmaasrawy et al. 2025; Tayem et al. 2019). Direct ownership is a poor proxy for firm identity, as, for example, Jordanian listed firms use pyramids and cross-holding to enhance their control, which requires the identification of ultimate owners through their direct and indirect ownerships (Tayem 2022). Hence, the use of direct ownership tends to underestimate the ownership of the ultimate owner and misclassifies firm identity.

The rest of this article is organized as follows. The next section reviews the literature on the determinants of cash holdings. Section 3 presents the research methodology and data. The results and their discussion are presented in Section 4 and Section 5, respectively. The conclusion is presented in Section 6.

2. Why Do Firms Hold Cash?

2.1. The Transaction and Precautionary Motives of Holding Cash

In their seminal study, Opler et al. (1999) examine firm-level determinants of cash holdings and identify two motives to hold cash: the transaction and precautionary motives. These motives assume that firms cannot adjust their capital structures costlessly to meet unexpected periods of insufficient resources because of capital market imperfections (Denis 2011). Therefore, firms accumulate cash to respond in a timely fashion to unexpected changes to their cash flows or set of investment opportunities (Almeida et al. 2014). The trade-off view implies that firms maximize their value by choosing an optimal level of cash that balances the marginal costs and benefits of holding cash (Opler et al. 1999). According to this view, firms with higher costs of external financing (transaction and precautionary) are expected to hold significantly higher levels of liquid assets. On the other hand, the financing hierarchy suggests that firms facing information asymmetries maintain a surplus of internal funds that can be used to provide financial flexibility (Almeida et al. 2014; Opler et al. 1999). This is because, in the presence of information asymmetry, external financing becomes costlier than internal resources (Myers and Majluf 1984). Hence, these two views have important implications in terms of the variables that influence cash holdings. The literature identifies several variables that may have a bearing on a firm’s cash holdings, including growth opportunities, capital expenditures, leverage, cash flow, firm size, dividends, and lines of credit, as detailed below.

Firms with large growth opportunities usually suffer from greater information asymmetry, making external financing very costly (Myers and Majluf 1984). Hence, these firms tend to accumulate more cash to avoid missing out on investment opportunities and to finance their capital expenditures (Opler et al. 1999). In line with this perspective, empirical evidence shows a positive relationship between growth opportunities and cash holdings (Durán et al. 2016; Lozano and Durán 2017; Moolchandani and Kar 2022; Tayem et al. 2019; Alves et al. 2022; Caixe 2025). In contrast, increased capital expenditures reduce a firm’s internal financing resources, suggesting less cash holdings (Opler et al. 1999). However, the empirical literature is inconclusive regarding this relationship; several studies report a positive impact (Durán et al. 2016; Lozano and Durán 2017; Jebran et al. 2019; Moolchandani and Kar 2022; Herdhayinta et al. 2023; Tayem 2023), while others show a negative effect (Cambrea et al. 2022; Yu and Wang 2025).

On the financial leverage impact on cash holdings, firms with low investment opportunities accumulate less cash because of the low marginal benefits of holding cash, while they carry a high level of leverage, suggesting a negative association between leverage and cash holdings (Opler et al. 1999). This is an intuition that is empirically supported by several studies (Jebran et al. 2019; Tayem et al. 2019; Moolchandani and Kar 2022; Elyasiani and Movaghari 2022; Herdhayinta et al. 2023; Caixe 2025; Yu and Wang 2025). Furthermore, the financing hierarchy view that informs the potential impact of leverage on cash holdings indicates a positive relationship between cash flow and cash holdings (Opler et al. 1999). This is because, when information asymmetry exists, firms tend to favor internal sources of financing over external alternatives (Myers and Majluf 1984). This potential positive effect of cash flow on cash balances is empirically supported by several studies (Durán et al. 2016; Lozano and Durán 2017; Jebran et al. 2019; Tayem et al. 2019; Moolchandani and Kar 2022; Alves et al. 2022; Herdhayinta et al. 2023; Yu and Wang 2025). Similarly, small firms face a greater information asymmetry and hence are more likely to maintain higher levels of cash than larger ones, an expectation that is well supported by the literature (Durán et al. 2016; Lozano and Durán 2017; Jebran et al. 2019; Alves et al. 2022; Tayem 2023; Caixe 2025; Yu and Wang 2025).

Regarding other firm-specific factors that may influence cash holdings, reducing dividends and utilizing lines of credit may serve as alternative sources of funds during times of liquidity constraints (Opler et al. 1999; Acharya et al. 2013), respectively. Sufi (2009) and Tayem et al. (2019) confirm that lines of credit have a negative relationship with cash balances. However, in practice, dividend-paying firms tend to hold high levels of cash to avoid cutting dividends during times of low internal cash flows. Therefore, dividends are found to positively influence cash holdings (Ozkan and Ozkan 2004; Tayem et al. 2019; Caixe 2025; Yu and Wang 2025). Nevertheless, recent findings by Elyasiani and Movaghari (2022) document a negative impact of dividends on cash holdings, a result that is more aligned with the argument of Opler et al. (1999).

2.2. Family Control, Financial Flexibility, and Agency Conflicts

The incentives of family firms to accumulate (disgorge) cash holdings are influenced by various incentives arising from the nature of family ownership. One attribute of family firms is their focus on the family legacy (Durán et al. 2016; Kuan et al. 2012) and on extending the life of the company to many future generations of the family (Durán et al. 2016; Lozano 2015; Basiony et al. 2025). Therefore, it is not surprising that family-controlled firms have longer investment horizons (Pindado et al. 2011). Hence, family firms may prioritize the financial flexibility provided by cash to undertake new investments (Durán et al. 2016; Lozano 2015; Lozano and Durán 2017; Basiony et al. 2025). However, unlike nonfamily firms, which are likely to hoard less cash if they face low information asymmetry, family firms are reluctant to obtain outside financing, even after controlling for the level of asymmetric information. Family firms may prefer to hold cash, more than what is required to provide the firm with financial flexibility, because liquid assets reduce the firm’s risk and increase the family’s discretion (Opler et al. 1999). For example, family firms avoid external debt financing to reduce bankruptcy risk (Andres 2011) and external equity financing to avoid a reduction in the family control over the company (Lozano 2015). In addition, according to the free cash model, liquid assets are “unmonitored” resources, while external sources of financing are monitored by market participants (Jensen 1986). For example, debt agreements attach covenants that are continually monitored by debtholders on a periodic basis (Acharya et al. 2020; Sufi 2009). Hence, family firms have incentives to accumulate cash to preserve flexibility not only in terms of facing adverse contingencies but also in terms of evading capital market discipline (Tayem et al. 2019).

However, the deployment of cash holdings is an important source of agency conflicts; hence, it is necessary to understand if family control exacerbates those conflicts. Liquid assets provide entrenched controlling shareholders with considerable discretion, enabling them to avoid the discipline imposed by capital markets (Jensen 1986). Furthermore, converting liquid assets into private benefits comes with a lower cost when compared to non-liquid assets; hence, cash holdings and other liquid assets can be expropriated at a lower cost in comparison to other corporate assets (Myers and Rajan 1998). Therefore, entrenched managers have incentives to stockpile cash to increase their discretion and maximize their own interests (Dittmar et al. 2003). Nevertheless, the level of investor protection plays an important role in determining the managers’ ability to expropriate. Shareholders in a country with strong investor protection can force firms to pay excess cash into dividends, thereby effectively reducing managers’ discretion (Dittmar et al. 2003; Iskandar-Datta and Jia 2014; Kalcheva and Lins 2007; Seifert and Gonenc 2018). Even though agency theory has served as a primary framework for explaining cash holdings by family firms, an alternative framework is offered in the literature, which is “socioemotional wealth” (Maquieira et al. 2025). According to this theory, family firms consider other non-financial motives when determining how much cash to hold, including family influence, continuity, identity, and reputation, and hence the cash holdings outcome may be different from what is predicted by agency theory (Maquieira et al. 2025). Furthermore, socioemotional wealth could play a major role in cash holding decisions by family firms, especially in countries with low investor protection but strong informal institutions (Maquieira et al. 2025).

Jordan is a country with weak investor protection (Bino et al. 2016; Tayem et al. 2019); consequently, shareholders are not expected to force managers to disgorge cash (Tayem et al. 2019). The legal system in Jordan makes it difficult for minority shareholders to take private legal actions against entrenched managers, while public enforcement is limited. Firm cash holdings in Jordan may thus have high potential costs because they facilitate conflicts between managers and shareholders. Nonetheless, when families serve as both shareholders and managers, their objectives tend to be aligned, putting family interests ahead of those of minority shareholders (Villalonga and Amit 2006). However, due to their ownership structure, family firms are inclined to implement policies, plans, and resource allocations that prioritize their family interests (Chrisman et al. 2013). This may lead to conflicts between the family and minority shareholders, as the family may be incentivized to seek private benefits at the expense of minority shareholders (Lozano 2015). Accordingly, family-controlled firms are likely to overinvest in liquid assets to attain financial flexibility and to pursue family benefits to the detriment of minority shareholder value. Hence, H1 states the following:

H1. 

Family firms hoard more cash, all else being equal, than nonfamily firms.

This positive impact of family control on cash holdings is traced back to two motives: financial flexibility (Durán et al. 2016; Lozano 2015; Lozano and Durán 2017; Basiony et al. 2025) and private benefits (Kuan et al. 2011; Liu et al. 2015). Although these two motives are likely to co-exist, this study attempts to estimate which of the two effects (financial flexibility versus expropriation) is likely to dominate Jordanian family firms’ decision to overinvest in liquid assets. One implication of the financing hierarchy view of cash holdings is that firms with large growth opportunities have incentives to accumulate cash to avoid the information asymmetry premium of external financing (Opler et al. 1999). Therefore, firms concerned with financial flexibility are expected to have a positive relationship between growth opportunities and cash. Hence, if family firms’ motive to attain financial flexibility is the driving force for hoarding cash, the impact of growth opportunities on cash holdings is expected to be stronger for family firms than for nonfamily firms. H2 states the following:

H2. 

The impact of growth opportunities on cash holdings is stronger for family firms, all else being equal, than for nonfamily firms.

3. Research Design, Variables, and Data

3.1. Model and Variables

To empirically test the predictions of the study hypotheses, a cash holdings model was developed, with family control as the main explanatory variable of interest.

$${Cash}_{it}=\alpha + \gamma {Family}_{it}+\sum {\beta }_k{X}_{kit}+ e_{it}$$

(1)

where Cash is defined as the cash and cash equivalents divided by the total assets (Kuan et al. 2011; Liu et al. 2015; Tayem et al. 2019). The study uses an alternative measure of cash, CashNet, which is calculated as the ratio of cash plus cash equivalents to the total value of assets excluding cash (Opler et al. 1999; Sufi 2009) to address the joint determination of cash balances and line of credit usage. Family is a dummy variable that equals one if the company is eventually controlled by an individual or a family, and takes the value of zero otherwise. Family-controlled firms are identified, following Tayem (2022), by combining both direct and indirect ownership (including crossholdings and pyramids) for all owners whose shareholdings exceed the 1% ownership threshold. Therefore, if the ultimate owner with the highest stake (both direct and indirect) is either a family or an individual, the firm is classified as a family firm. Even though Equation (1) does not show it, the model incorporates other potential identities, including companies of foreign origins that are controlled by institutions (ForeignInstitution). X_k is a vector of the control variables identified in the literature as determinants of cash holdings. The choice of control variables is discussed in the previous section and includes growth opportunities (MTB), access to a line of credit (CreditLine), leverage (Leverage), firm cash flows (CashFlow), firm size (Size), dividends (Dividends), and capital expenditures (CapEx). MTB is the market-to-book value ratio, which is defined as the market value of equity plus the book value of liabilities divided by the total assets (Kuan et al. 2011; Liu et al. 2015; Opler et al. 1999; Tayem et al. 2019). CreditLine is a binary variable that is assigned the value of one if a company has access to a line of credit, and assumes zero otherwise (Sufi 2009; Tayem et al. 2019). Leverage is equal to long-term debt divided by the total assets (Kuan et al. 2011; Liu et al. 2015; Opler et al. 1999; Tayem et al. 2019). CashFlow is defined as the earnings before interest, taxes, and depreciation divided by the total assets (Kuan et al. 2011; Liu et al. 2015; Opler et al. 1999; Tayem et al. 2019). Size is defined as the natural logarithm of the total assets (Kuan et al. 2011; Liu et al. 2015; Opler et al. 1999; Tayem et al. 2019). Dividends is a binary variable that equals one if the firm pays dividends and is zero otherwise (Kuan et al. 2011; Opler et al. 1999; Tayem et al. 2019). CapEx is equal to the change in net fixed assets between two consecutive years divided by the capital at the beginning of the period (Kuan et al. 2011; Liu et al. 2015; Opler et al. 1999; Tayem et al. 2019). The operational definitions of the variables and their expected signs are summarized in

Table 1. Summary of variable definitions and their predicted signs.

Variable	Proxy	Predicted Sign
Cash	= (cash + cash equivalents) ÷ total assets	Dependent variable
CashNet	= (cash + cash equivalents) ÷ (total assets − (cash + cash equivalents))	Dependent variable
Family-controlled firm (Family)	A dummy variable that assumes one if the company is family- or individual-controlled and is zero otherwise	+/−(Agency)
Foreign institution-controlled firms (ForeignInstitution)	A dummy variable that equals one if the firm is eventually controlled by a foreigner whose identity is a financial institution or a corporation and is zero otherwise	+/−(Agency)
Growth opportunities (MTB)	= (market value of equity + the book value of liabilities) ÷ total assets	+(Financing hierarchy)
Line of credit (CreditLine)	An indicator variable that takes the value of one if the firm has a line of credit and is zero otherwise	−(Substitution)
Leverage (Leverage)	= total long-term debt ÷ total assets	−(Financing hierarchy and trade-off)
Cash flows (CashFlow)	= earnings before interest, tax, and depreciation ÷ total assets	+(Financing hierarchy)
Firm size (Size)	= ln (total assets)	−(Trade-off and financing hierarchy)
Dividends (Dividends)	An indicator variable that takes the value of one if the firm pays dividends and is zero otherwise	−(Financing hierarchy) +(Trade-off)
Capital expenditures (CapEx)	= (net fixed assetst − net fixed assetst−1) ÷ total assetst−1	−(Financing hierarchy) +(Trade-off)

.

3.2. Estimation Methods

The study applies the random effects model as its baseline model. However, because the selection of family control is non-random, this can lead to inconsistent and biased coefficients. To address this concern, the study incorporates additional econometric techniques specifically designed to correct for selection bias. First, we apply a treatment effect estimation, which is a Heckman-type model. In the treatment effect procedure, the selection bias, whether a firm is family controlled, is modelled in the first stage by calculating the probability a firm will be controlled by a family (i.e., the treatment). The inverse Mill’s ratios are estimated using the probit results and incorporated into the second-stage outcome equation as an extra regressor to account for the unobserved selection bias that the firm is family controlled. This correction term accounts for unobserved factors that simultaneously influence both the likelihood of family control and the firm’s cash-holding behavior, thereby mitigating selection bias (Guo and Fraser 2014).

In addition, the study applies the propensity score matching (PSM) technique to account for the selection bias in Equation (1). PSM is the conditional probability of receiving treatment, where the treatment of interest is family control. PSM estimates the probability of family ownership (i.e., the propensity score); then, using kernel matching, which computes the distance of propensity scores of each firm with family control from all nonfamily control firms, family firms are matched with nonfamily firms based on the estimated propensity scores and the average treatment effect for the treated (ATT) is computed (Guo and Fraser 2014). By combining the baseline random effect specification with treatment effect estimation and PSM, the study aims to provide a more rigorous and comprehensive analysis that accounts for both observable and unobservable sources of selection bias.

3.3. Data and Sample

The study sample is composed of Jordanian industrial firms that are publicly traded on the ASE during the period 2013–2024. The financial variables are manually collected from Company Guides available on the ASE’s website, which are themselves collected from the firms’ financial statements. The ultimate owner of a firm is identified using data compiled from the Securities Depository Centre (SDC), which provides details on shareholder names, countries of origin, and ownership stakes for those who hold 1% or above (Tayem 2022). If the SDC reports that a firm’s ownership is held by a private or a foreign enterprise, further tracing of ownership is carried out through the registry maintained by the Company Controller (a department within the Ministry of Industry, Trade and Supply), and, in cases of foreign ownership, through a web research (Tayem 2022). None of the sample firm-years are identified as widely held companies, whether they are held by the public or controlled by widely held companies or widely held financial institutions. The final sample comprises 454 firm-year observations drawn from 49 industrial entities.

4. Data Description

Table 2. Summary statistics.

	Mean	Median	SD	Min	Max	Skewness	Kurtosis
Cash	0.110	0.077	0.118	0	0.754	1.707	6.468
CashNet	0.153	0.084	0.241	0	3.071	5.331	52.423
Family	0.573	1	0.495	0	1	−0.294	1.086
MTB	1.130	0.960	0.709	0.207	6.212	3.354	18.423
CreditLine	0.570	1	0.496	0	1	−0.285	1.081
Leverage	0.052	0.003	0.085	0	0.557	2.151	8.145
CashFlow	0.046	0.050	0.109	−0.922	0.433	−1.669	18.030
Size	17.102	16.819	1.359	12.677	21.488	0.924	4.734
Dividends	0.432	0	0.496	0	1	0.276	1.076
CapEx	0.024	−0.007	0.528	−0.425	11.147	20.639	434.904

The sample is composed of industrial firms listed on the ASE during the period 2013–2024. Table 1 provides variable definitions.

provides descriptive statistics of the study sample. The table shows that the cash holdings to total assets for the average industrial listed firm is 11%. The median value of Cash is only 7.7%. In terms of firm identity, Table 2 shows that around 57% of firm-year observations are classified as family-controlled firms, which is in line with the findings of Tayem (2022). The rest of the sample statistics are consistent with those reported in the relevant literature (Alkhataybeh et al. 2022; Tayem et al. 2019).

The correlation matrix is presented in

Table 3. The correlation matrix.

	Cash	CashNet	Family	MTB	CreditLine	Leverage	CashFlow	Size	Dividends
CashNet	0.919 ***
Family	0.048	0.083 *
MTB	0.191 ***	0.202 ***	0.069
CreditLine	−0.181 ***	−0.190 ***	0.006	−0.031
Leverage	−0.308 ***	−0.242 ***	0.068	−0.067	0.105 **
CashFlow	0.378 ***	0.244 ***	−0.168 ***	0.029	−0.045	−0.220 ***
Size	0.072	0.007	−0.299 ***	−0.028	0.106 **	−0.019	0.450 ***
Dividends	0.420 ***	0.318 ***	−0.119 **	0.128 ***	−0.115 **	−0.276 ***	0.551 ***	0.236 ***
CapEx	−0.037	−0.027	−0.048	−0.018	0.045	0.035	0.007	0.064	−0.029

The sample is composed of industrial firms listed on the ASE during the period 2013–2024. Table 1 provides variable definitions. ***, **, and * indicate significance level at 1%, 5%, and 10%, respectively.

and shows that Family is significantly positively associated with CashNet. Furthermore, it shows that Cash and CashNet are significantly and positively correlated with growth opportunities (MTB), CashFlow, and Dividends, but negatively associated with CreditLine and Leverage, which is consistent with the theoretical predictions in the literature.

Next,

Table 4. Firm characteristics by family control.

	Nonfamily	Family	Difference	t-Test
Cash	0.104	0.115	–0.011	–1.020
CashNet	0.130	0.171	–0.040	–1.773 *
MTB	1.074	1.172	–0.098	–1.463
CreditLine	0.567	0.573	–0.006	–0.129
Leverage	0.046	0.057	–0.012	–1.439
CashFlow	0.067	0.030	0.037	3.625 ***
Size	17.573	16.751	0.822	6.671 ***
Dividends	0.500	0.381	0.119	2.550 **
CapEx	0.053	0.002	0.051	1.023

Table 4 reports the means of the study variables for family (260 firm-year observations) and nonfamily firms (194 firm-year observations) for a sample of industrial firms listed on the ASE during the period 2013–2024, and the results of the t-test equality of means. Variables are defined in Table 1. ***, **, and * indicate significance at 1%, 5%, and 10%, respectively.

presents the t-test of the difference in means of firm characteristics between family and family-controlled firms and shows that family firms hoard significantly more cash (computed as a percentage of net total assets). The results presented in Table 3 and Table 4 lend initial support for the main argument of this study that family firms hoard more cash than nonfamily firms. The test results in Table 4 also demonstrate that, on average, family firms are significantly smaller in size and pay fewer dividends than nonfamily firms, consistent with the expected signs of the relationships between cash holdings and firm size as well as dividends. Furthermore, the t-test shows that family firms generate significantly lower cash flows than their nonfamily counterparts.

5. Results

Table 5. The impact of family control on cash and net cash holdings.

	Random Effects	Treatment Effects
	(1)	(2)	(3)	(4)
Family	0.043 **	0.059 ***	0.022 *	0.056 **
	(2.54)	(3.22)	(1.93)	(2.26)
Foreign-Institution	0.030	0.050 ***	-	-
	(1.11)	(2.56)	-	-
MTB	0.023	0.023 ***	0.023 ***	0.054 ***
	(1.44)	(3.54)	(3.50)	(3.68)
CreditLine	–0.035 **	–0.019 *	–0.025 ***	–0.065 ***
	(–2.18)	(–1.91)	(–2.64)	(–3.11)
Leverage	–0.127 **	–0.240 ***	–0.240 ***	–0.404 ***
	(–2.47)	(–4.16)	(–4.14)	(–3.19)
CashFlow	0.251 **	0.318 ***	0.300 ***	0.348 ***
	(2.19)	(5.55)	(5.24)	(2.78)
Size	0.005	–0.010 **	–0.006	–0.010
	(0.43)	(–2.28)	(–1.36)	(–1.15)
Dividends	0.024 *	0.053 ***	0.056 ***	0.093 ***
	(1.77)	(4.55)	(4.78)	(3.65)
CapEx	–0.001	0.003	–0.000	0.002
	(–0.33)	(0.36)	(–0.05)	(0.12)
Observations	454	454	454	454
Year Effects	Yes	First Stage	First Stage	First Stage
Industry Effects	-	Second Stage	Second Stage	Second Stage
R2	0.277

Table 5 reports the estimation of Equation (1) using a sample of industrial firms listed on the ASE during the period 2013–2024. Table 1 provides variable definitions. ***, **, and * indicate significance at 1%, 5%, and 10%, respectively. z and t statistics are in parentheses.

presents the estimation results of Equation (1). All estimations use robust standard errors. It starts by presenting the estimation results of the random effects model in column (1). Then, it presents the estimation results of the treatment effects applied to account for the endogeneity between firm control and cash holdings reported in columns (2) to (4). Columns (1) and (2) report the estimation results with the variable ForeignInstiution; hence, the results show the impact of family firms while controlling for foreign institutional ownership. The results indicate that Family is positively and significantly related to Cash in both the random effects model and the treatment effects at the 5% and 1% significance level, respectively. Columns (3) and (4) report the estimation results of the impact of family firms against nonfamily firms using the variables Cash and CashNet, respectively. The results indicate that Family is positively and significantly related to Cash and CashNet at the 10% and 5% level, respectively. This result supports the prediction of H1 and is consistent with the view that family firms accumulate significantly more cash than nonfamily firms.

In terms of control variables, the results are consistent across model specifications, estimation methods, and measurements of the cash variable; hence, the discussion below will focus on the results reported in Table 5, column (3). The figures show that MTB is positively and significantly related to Cash at the 1% significance level. This result supports the prediction of the financing hierarchy that firms with growth opportunities accumulate internal sources of financing to avoid the premium of external sources of financing in the presence of information asymmetry. The result is also consistent with the empirical evidence that documents a negative relationship between growth opportunities and cash holdings (Durán et al. 2016; Lozano and Durán 2017; Tayem et al. 2019; Moolchandani and Kar 2022). CreditLine is negatively and significantly related to Cash at the 1% significance level, which suggests that there is a substitution effect between insured liquidity in the form of lines of credit and holding liquid assets. The results are also consistent with the empirical evidence that documents a negative relationship between having access to a line of credit facility cash holdings (Sufi 2009; Tayem et al. 2019). Leverage is negatively and significantly related to Cash. This result supports the prediction of the financing hierarchy that firms with internal resource surpluses (deficits) use these resources to repay debt and/or save cash (exhaust cash and/or issue debt), which implies a negative relation between leverage and cash holdings. This result is in line with the empirical evidence reported in previous studies (Jebran et al. 2019; Tayem et al. 2019; Moolchandani and Kar 2022; Herdhayinta et al. 2023).

CashFlow is positively related to Cash at the 1% significance level. This result supports the financing hierarchy view (Opler et al. 1999) because, when information asymmetry exists, firms tend to favor internal sources of financing over external alternatives (Myers and Majluf 1984). This finding is empirically supported by several studies (Durán et al. 2016; Lozano and Durán 2017; Jebran et al. 2019; Tayem et al. 2019; Moolchandani and Kar 2022; Alves et al. 2022; Herdhayinta et al. 2023; Yu and Wang 2025). Interestingly, although firm size (Size) is negatively related to Cash, it is mostly insignificant. Consistent with Ozkan and Ozkan’s (2004) view that dividend-paying firms accumulate cash to avoid scenarios where they are short of internal cash flows that are insufficient to pay dividends, this study finds that Dividends are positively related to Cash at the 1% level. However, there is no evidence that capital expenditures (CapEx) affect cash holdings.

To check for the robustness of the impact of Family on Cash, the study uses propensity score matching to account for the non-random selection of family control and reports the estimation results in

Table 6. Matching estimations.

		Coefficient	z	p
Propensity score matching	Cash	0.025 **	2.33	0.020
	CashNet	0.062 ***	3.05	0.002
Nearest-neighbor matching	Cash	0.023 **	2.10	0.036
	CashNet	0.061 ***	3.00	0.003

Table 6 reports the results of matching estimations using a sample of industrial firms listed on the ASE during the period 2013–2024. Table 1 provides variable definitions. ***, **, and * indicate significance at 1%, 5%, and 10%, respectively.

. The results indicate that Cash and CashNet are significantly larger in family firms compared to nonfamily firms at the 5% and 1% level, respectively. Hence, the evidence that family firms hold significantly more cash than nonfamily firms is robust to the specification, the measurement of cash, and the estimation method.

To examine the second hypothesis of the study, we estimate Equation (1) separately for family and nonfamily firms to gauge the impact of growth opportunities on cash holdings. We perform this test to avoid the endogeneity caused by including the variable Family and its interaction with MTB. Then, to examine the significance of the impact of MTB on Cash for both the family and nonfamily groups, we include an interaction term between Family and MTB (Family*MTB). All estimations are carried out using the random effects model. The estimation results are reported in

Table 7. The moderating impact of family control on the growth–cash relationship.

	Family	Nonfamily	Whole Sample
Family	-	-	0.024
	-	-	(0.49)
MTB	0.019 *	0.017	0.025
	(1.80)	(0.51)	(0.63)
Family*MTB	-	-	–0.002
	-	-	(–0.06)
CreditLine	–0.038	–0.036 ***	–0.036 **
	(–1.39)	(–2.68)	(–2.26)
Leverage	–0.127 **	–0.140	–0.132 **
	(–2.29)	(–1.59)	(–2.51)
CashFlow	0.276 ***	0.241	0.247 ***
	(2.58)	(1.37)	(2.69)
Size	–0.011	0.017 **	0.006
	(–0.65)	(2.04)	(0.62)
Dividends	0.011	0.028 **	0.025
	(0.49)	(2.23)	(1.92) *
CapEx	0.022	–0.005 *	–0.002
	(0.26)	(–1.73)	(–0.49)
Observations	260	194	454
Year Effects	Yes	Yes	Yes
R2	0.309	0.283	0.272

Table 7 reports the estimation of Equation (1) including an interaction term Family*MTB, using a sample of industrial firms listed on the ASE during the period 2013–2024. Table 1 provides variable definitions. ***, **, and * indicate significance at 1%, 5%, and 10%, respectively. z-statistics are in parentheses.

. The results show that the size of the MTB coefficient is comparable for the family and nonfamily groups; however, it is significant only for the family group. The interaction term Family*MTB is negative but insignificantly related to Cash. This result indicates that the impact of growth opportunities on cash holdings is not significantly different between family and nonfamily firms, which suggests that family firms are not more concerned with preserving financial flexibility compared to nonfamily firms. This result is discussed in detail in the next section by exploring the market reaction to cash holdings within family firms compared to nonfamily firms.

6. Discussion

This study documents a positive robust impact of family control on the level of cash holdings; family firms accumulate significantly larger cash holdings compared to their nonfamily counterparts. This result supports two views on the impact of family control on cash holdings. The first view postulates that family firms’ holdings of cash are strategic, as family firms are more concerned with financial flexibility than nonfamily firms due to their incentives to preserve the family legacy and extend the life of the company (Durán et al. 2016; Lozano 2015; Lozano and Durán 2017) and their reluctance to obtain outside financing to evade external interference, monitoring, and control (Tayem et al. 2019). The second view argues that family-controlled firms overinvest in liquid assets to pursue family benefits to the detriment of minority shareholder value (Kuan et al. 2011; Liu et al. 2015). The latter view is especially relevant for firms operating in weak-investor-protection environments (Dittmar et al. 2003; Harford et al. 2008), where conflicts between family and nonfamily shareholders are likely to be exacerbated (Jebran et al. 2019; Kuan et al. 2011; Liu et al. 2015).

Furthermore, the study documents that the impact of growth opportunities on cash holdings is significant among the group of family firms. However, the impact of growth opportunities on cash holdings is not significantly different between family and nonfamily firms. The result suggests that, although family firms are concerned with preserving financial flexibility, they are not significantly more concerned with financial flexibility compared to nonfamily firms. Consequently, the evidence remains inconclusive as to whether family firms accumulate cash primarily to safeguard strategic flexibility or to advance family-specific interests, including the pursuit of private benefits.

Given this ambiguity, it becomes particularly important to investigate how external market participants value cash holdings in family firms. If investors believe that cash reserves in family-controlled firms are likely to be deployed in ways that favor family interests at the expense of minority shareholders, they may assign a lower value to each additional unit of cash held. Conversely, if investors perceive cash accumulation in family firms as a rational response to financing frictions or growth opportunities, they may value cash similarly across ownership structures. To address this question, the study evaluates the impact of excess cash on firm value by applying the valuation framework developed by Pinkowitz et al. (2006) and Dittmar and Mahrt-Smith (2007). Moolchandani and Kar (2022) extended the model to include the variable family control and its interaction with excess cash. Excess cash is estimated using Equation (1), excluding firm identity variables, and applying the random effects model. The results are reported in

Table 8. The moderating impact of family control on the cash–value relationship.

	Firm Value
Family	0.026	(0.61)	0.272 ***	(2.78)
dCit	0.939	(1.60)	-	-
Family*dNAit	–1.951 ***	(–2.98)	-	-
dCit+1	–1.182 **	(–2.36)	-	-
ExcessCash	-	-	5.485 ***	(3.77)
Family*ExcessCash	-	-	–2.114 **	(–2.44)
Eit	–0.825	(–1.06)	–2.721 ***	(–3.40)
dEit	1.203 **	(2.33)	1.361 **	(2.54)
dEit+1	0.413	(0.85)	–0.267	(–0.58)
dNAit	–0.373	(–1.37)	0.006	(0.02)
dNAit+1	0.015	(0.10)	0.086	(0.56)
Iit	5.713 **	(2.26)	10.093 ***	(3.61)
dIit	14.232 **	(2.42)	11.968 **	(2.18)
dIit+1	–0.970	(–0.22)	–3.398	(–0.74)
Dit	10.919 ***	(7.96)	8.718 ***	(5.08)
dDit	–3.783 **	(–2.38)	–5.164 ***	(–3.26)
dDit+1	–1.008	(–0.43)	–1.123	(–0.37)
dMVit+1	0.086	(0.74)	0.113	(0.95)
Observations	405		405
Year Effects	Yes		Yes
R2	0.429		0.459

Table 8 reports the estimation results of firm value using the models specified in Moolchandani and Kar (2022). X_t is the level of variable X in year t divided by the level of assets in year t. dX_t is the change in the level of X from year t − 1 to year t divided by total assets in year t ((X_t − X_t−1)/A_t). dX_t+1 is the change in the level of X from year t + 1 to year t divided by assets in year t ((X_t+1 − X_t)/A_t). MV is the market value of the equity plus book value of debt. E is earnings plus interest. NA is net assets, which is defined as total assets minus cash. I is interest expense. D is dividends. C is cash. This study did not include the research and development (R&D) variable because Jordanian firms rarely invest in R&D; hence, this item is not reported in their financial statements. The sample consists of industrial Jordanian firms listed on the ASE over the period 2013–2024. The loss of observations in this estimation compared to other estimations is due to the use of a lead observation in the final year. ***, **, and * indicate significance at 1%, 5%, and 10%, respectively. t-statistics are in parentheses.

. The results show that the interaction term is significantly negatively related to the market value, which suggests that shareholders value the cash holdings of family firms negatively compared to the cash holdings of nonfamily firms. This evidence suggests that market investors perceive that family firms hold cash to pursue private benefits.

7. Conclusions

This study identifies two motives of family firms to accumulate cash. The first is strategic, which provides the family firm with the financial flexibility required to preserve the firm’s long-term objectives, hence the family legacy. The second is opportunistic, as cash holdings provide the controlling family with resources that can be easily expropriated. The findings of this study show that family firms indeed accumulate significantly larger cash holdings than nonfamily firms. In addition, the findings suggest that cash holdings in family firms are not influenced by financial flexibility concerns, evidenced by the insignificant difference between the relationship between growth opportunities and cash holdings in family and nonfamily firms. Furthermore, the findings indicate that shareholders discount the value of cash held by family firms, suggesting that investors in family firms reflect the cost of agency conflicts over the deployment of cash holdings on the firm valuation.

The findings of this study, together with the evidence in Tayem et al. (2019) of a positive effect of ownership on cash accumulation among firms with high cash holdings, necessitate the need for strong corporate governance regulation to be set by the ASE to mitigate potential conflicts of interest related to the use of cash reserves. In addition, the result on the negative impact of cash held by family firms on their value should draw the attention of family firms to the need to optimize their cash balances to maximize the value of their firms. The results suggest that (minority) shareholders do not perceive the value of keeping the cash balances at their current level with family firms. Hence, family firms are advised to adjust these balances to their optimal level. Future research can extend this study by examining the interrelation between ownership and corporate governance mechanisms to identify the governance mechanisms that are best suited to reduce the agency conflicts over the deployment of cash. Furthermore, one limitation of this study is its focus on public, and presumably large, firms. Hence, future research can examine the decision to accumulate cash holdings in small and private firms, especially in the context of emerging markets.