Family control and investment-cash flow sensitivity: Empirical evidence from the Euro zone

This paper considers the ownership structure of family firms to determine whether family control alleviates or exacerbates investment-cash flow sensitivity in the Euro zone. We find that family-controlled corporations have lower investment-cash flow sensitivities. Further, our results show that this reduced sensitivity is mainly attributable to family firms with no deviations between cash flow and voting rights and to family firms in which family members hold managerial positions. We also find that second largest shareholders affect family firms' sensitivity and are associated with either monitoring (non-family second blockholders) or collusion (family second blockholders). Overall, family control seems to mitigate investment inefficiencies that derive from capital market imperfections. (C) 2011 Elsevier B.V. All rights reserved.