Table 7. Endogeneity of founding family...

Table 7.

Endogeneity of founding family firms – instrumental variable approach

	First stage		Second stage
Dependent variable	FFF	FFF#LMR	Cash	CashTo NetAssets
	(1)	(2)	(3)	(4)
High family values	0.081 (1.13)	0.511 (1.31)
High family values#LMR	–0.034** (−1.99)	–0.200** (−2.09)
Individualism	–0.028*** (−3.36)	–0.116*** (−2.86)
Individualism#LMR	0.006*** (3.46)	0.025*** (2.90)
Inheritance law permissiveness	1.024* (1.90)	4.632* (1.74)
Inheritance law permissiveness#LMR	–0.465*** (−3.13)	–2.083*** (−2.83)
LMR	–0.100* (−1.77)	–0.108 (−0.39)	–0.035** (−2.07)	–0.106** (−2.25)
LMR#FFF			0.202** (2.05)	0.566** (2.06)
FFF			–0.703* (−1.73)	–1.964* (−1.75)
Size $_{(t - 1)}$	–0.033*** (−5.98)	–0.135*** (−4.27)	–0.002 (−0.61)	–0.003 (−0.33)
Growth $_{(t - 1)}$	–0.002 (−1.09)	–0.016* (−1.84)	0.020*** (11.01)	0.059*** (9.25)
Leverage $_{(t - 1)}$	0.106*** (3.12)	0.453*** (2.80)	–0.309*** (−18.23)	–0.722*** (−12.80)
NWC $_{(t - 1)}$	0.078*** (3.21)	0.377*** (3.26)	–0.102*** (−6.02)	–0.281*** (−5.60)
Investments $_{(t - 1)}$	–0.060 (−1.07)	–0.227 (−0.96)	0.049 (1.39)	0.296** (2.53)
Dividends $_{(t - 1)}$	0.078*** (2.61)	0.323** (2.01)	–0.020** (−2.31)	–0.088*** (−3.30)
Cash flow $_{(t - 1)}$	0.187*** (3.33)	0.742** (2.29)	–0.146*** (−6.03)	–0.697*** (−7.15)
Cash flow volatility $_{(t - 1)}$	–0.012 (−0.51)	–0.020 (−0.17)	0.035*** (3.00)	0.096*** (2.69)
Other ultimate owner	–0.370*** (−4.82)	–1.639*** (−3.85)	0.062*** (2.59)	0.185*** (2.76)
Inflation $_{(t - 1)}$	–1.672 (−1.60)	–9.960* (−1.91)	0.137 (0.45)	1.592** (2.00)
GDP growth $_{(t - 1)}$	–0.521 (−1.58)	–2.969* (−1.72)	0.137 (1.17)	0.434 (1.20)
ln(GDP p.c.) $_{(t - 1)}$	–0.280*** (−6.37)	–1.237*** (−5.83)	0.059*** (2.67)	0.149** (2.42)
Industry-Year fixed effects	Yes	Yes	Yes	Yes
Clustered standard errors	Country-level	Country-level	Country-level	Country-level
Observations	27,834	27,834	27,834	27,834
Kleibergen-Paap rk wald F			3.111	3.111
p-value of hansen J test			0.134	0.169

	First stage		Second stage
Dependent variable	FFF	FFF#LMR	Cash	CashTo NetAssets
	(1)	(2)	(3)	(4)
High family values	0.081 (1.13)	0.511 (1.31)
High family values#LMR	–0.034** (−1.99)	–0.200** (−2.09)
Individualism	–0.028*** (−3.36)	–0.116*** (−2.86)
Individualism#LMR	0.006*** (3.46)	0.025*** (2.90)
Inheritance law permissiveness	1.024* (1.90)	4.632* (1.74)
Inheritance law permissiveness#LMR	–0.465*** (−3.13)	–2.083*** (−2.83)
LMR	–0.100* (−1.77)	–0.108 (−0.39)	–0.035** (−2.07)	–0.106** (−2.25)
LMR#FFF			0.202** (2.05)	0.566** (2.06)
FFF			–0.703* (−1.73)	–1.964* (−1.75)
Size $_{(t - 1)}$	–0.033*** (−5.98)	–0.135*** (−4.27)	–0.002 (−0.61)	–0.003 (−0.33)
Growth $_{(t - 1)}$	–0.002 (−1.09)	–0.016* (−1.84)	0.020*** (11.01)	0.059*** (9.25)
Leverage $_{(t - 1)}$	0.106*** (3.12)	0.453*** (2.80)	–0.309*** (−18.23)	–0.722*** (−12.80)
NWC $_{(t - 1)}$	0.078*** (3.21)	0.377*** (3.26)	–0.102*** (−6.02)	–0.281*** (−5.60)
Investments $_{(t - 1)}$	–0.060 (−1.07)	–0.227 (−0.96)	0.049 (1.39)	0.296** (2.53)
Dividends $_{(t - 1)}$	0.078*** (2.61)	0.323** (2.01)	–0.020** (−2.31)	–0.088*** (−3.30)
Cash flow $_{(t - 1)}$	0.187*** (3.33)	0.742** (2.29)	–0.146*** (−6.03)	–0.697*** (−7.15)
Cash flow volatility $_{(t - 1)}$	–0.012 (−0.51)	–0.020 (−0.17)	0.035*** (3.00)	0.096*** (2.69)
Other ultimate owner	–0.370*** (−4.82)	–1.639*** (−3.85)	0.062*** (2.59)	0.185*** (2.76)
Inflation $_{(t - 1)}$	–1.672 (−1.60)	–9.960* (−1.91)	0.137 (0.45)	1.592** (2.00)
GDP growth $_{(t - 1)}$	–0.521 (−1.58)	–2.969* (−1.72)	0.137 (1.17)	0.434 (1.20)
ln(GDP p.c.) $_{(t - 1)}$	–0.280*** (−6.37)	–1.237*** (−5.83)	0.059*** (2.67)	0.149** (2.42)
Industry-Year fixed effects	Yes	Yes	Yes	Yes
Clustered standard errors	Country-level	Country-level	Country-level	Country-level
Observations	27,834	27,834	27,834	27,834
Kleibergen-Paap rk wald F			3.111	3.111
p-value of hansen J test			0.134	0.169

Note(s):

This table presents the results of instrumental variable regressions for cash holdings. We instrument both FFF dummy and LMR#FFF. Columns 1 and 2 show the result of first-stage regressions. The instruments are High Family Values, Individualism, and Inheritance Law Permissiveness and interaction term of each instrument with LMR. Columns 3 and 4 show the result of second-stage regression for Cash and CashtoNetAssets respectively. All independent variables except LMR, FFF, Other Ultimate Owner, and instruments are lagged by one period. All variables are defined in Table A1 in the Appendix. All regression specifications include industry-year fixed effects. The t-Statistics in parentheses are based on robust standard errors, clustered at the country level. *, **, *** denote statistical significance at the 10, 5, and 1% levels, respectively

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