This empirical research examines the effect of family control on firms' cash holding policy. Using a sample of Western European firms, we confirm the precautionary motive for holding cash as family-controlled firms' desire to perpetuate the family legacy for future generations motivates them to accumulate more cash than their non-family counterparts. We also show that, given family-controlled firms' long-term perspective, they focus on cash flow volatility rather than cash flow level. Finally, the relation between financing constraints and cash holdings is not homogeneous: financially constrained family-controlled firms hold higher levels of cash than financially constrained non-family firms. Overall, these results suggest that family firms' cash holding policy is the result not of a specific financial outcome but rather on the strategic objectives of the firm.

This paper analyzes the relation between the 2008 European financial crisis and firms' cash holding policies from a precautionary motive perspective. After considering how the European financial crisis affected the cash holding policy across different period times, we focus on whether these variations come from changes in precautionary motives. We find a positive effect for the short crisis period and a negative effect for long crisis period for the full sample. We also find evidence that for financially constrained firms, the relation between cash volatility and cash holding is positive for short crisis period but turns negative for the long crisis period. Policy Implications• Banks in Europe, while preparing their corporate governance effectiveness policies, should consider that the crisis effect on cash holding decisions is not homogeneous for firms.

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