Table A1. Definition of variables...

Table A1.

Definition of variables

Variables	Definition
Panel A: Firm level variables
Family firm dummy (FFF)	An indicator variable that equals one if an individual or a family owns at least 25% of a firm’s voting rights and is related by blood or marriage to the founder of the company
Other ultimate owner	An indicator variable that equals one if the firm has an global ultimate owner owns that owns at least 25% of a firm’s voting rights, and the firm is not classified as founding family firm
Cash	Cash and short-term investments divided by the book value of total assets
CashToNetAssets	Cash and short-term investments divided by the book value of total assets net of cash and short-term investments
Ln(CashToNetAssets)	The natural logarithm of one plus the ratio of CashToNetAssets
Cash $^{N e t o f D e b t}$	Cash and short-term investments net of long-term debt divided by the book value of total assets
Size	The natural logarithm of the book value of total assets
Growth	The market-to-book ratio, defined as the book value of total assets minus the book value of equity plus the market value of equity, divided by the book value of total assets
Leverage	Book value of total debt divided by the book value of total assets
NWC	Working capital net of cash divided by the book value of total assets
Investment	The sum of capital expenditures, acquisitions, and R&D expenditures divided by the book value of total assets
Dividends	An indicator variable that equals one if a firm pays cash dividends in a particular year, and zero otherwise
Cash flow	Earnings after interests, dividends, and taxes but before depreciation divided by the book value of total assets
Variables	Definition
Cash flow volatility	The standard deviation of industry cash flow calculated as follows: the firm–year standard deviation of cash flow for the previous five years (minimum three years). industry cash flow volatility is then calculated as the average of the firm cash flow standard deviations for each country-industry in each year, classified by 48 Fama-French industries
Panel B: Country level controls
LMR	The arithmetic mean of the ratings of four Sub indicators of the economic freedom of the world (EFW) index by the fraser institute: hiring regulations and minimum wages, hiring and firing regulations, centralized collective bargaining, and mandated cost of worker dismissal. The indicators are normalized to range from 0 to 10. The index is defined as ten minus the aggregate index
$Δ$ LMR $^{L C}$	A continuous variable that equals to the changes in LMR if the change is greater than the mean of absolute LMR changes in the sample (0.2 units), and zero otherwise
LMR $^{L C - I}$	A categorical variable that is based on changes in LMR that are greater than the mean of absolute LMR changes in the sample (0.2 units). the variable is defined recursively starting in 2007 (sample beginning) and distinguish between changes that increased (⁠ $+$ 1) and those that decreased (−1) employment protection
Inflation	The annual inflation rate
GDP growth	The real annual growth rate in gross domestic product
ln(GDP pc.)	The natural logarithm of gross domestic product in constant 2010U.S. dollars divided by total population
Panel C: Additional variables
Labor intensive firms	An indicator variable that equals one if a firm’s labor intensity is above the median of the labor intensity in the affiliate industry (48-Fama French industry classification) in a particular year, and zero otherwise. The labor intensity for each firm is calculated as the number of employees divided by total assets
Domestic firms	An indicator variable that equals one if a firm does not report any foreign assets in the previous three years. Ratio of local assets is computed as total assets minus international assets divided by total assets
Sales volatility	The firm–year standard deviation of sales to total assets calculated for the previous five years. In case that fewer than five years of lagged data are available, the standard deviation is calculated over all available years, but is set to missing if fewer than 3 years are available
Cash flow volatility	The firm–year standard deviation of cash flow to total assets calculated for the previous five years. In case that fewer than five years of lagged data are available, the standard deviation is calculated over all available years, but is set to missing if fewer than 3 years are available
Inheritance law permissiveness	The average of five indicators of the permissiveness of inherence law that differ depending on the surviving of spouse and the total number of children (Ellul et al., 2010)
Gini coefficient	Gini coefficient from OECD
Corporate tax	Corporate tax rate from OECD
Unionization	Natural logarithm of the trade union density rate from OECD
Business confidence	Yearly growth of the business confidence indicator from OECD
Macro-Economic uncertainty	One year ahead macroeconomic uncertainty index of Rossi and Sekhposyan (2015)
Crisis dummy	An indicator variable that equals one for the years 2008 and 2009 and zero otherwise
Age	Natural logarithm of (1 $+$ age). age is based on founding year, hand-collected or from Thomson Reuters
R&D-Intensity	An indicator variable that equals to one if industry-year median values for R&D expenses to sales from the previous year belong to the upper quartile and zero otherwise
Intangible assets	Intangible capital to sales from the previous year, adjusted for median industry values in a particular country-year
Size dummy	An indicator variable equal to one for firms that are smaller (in terms of total assets) than the sample median and zero otherwise, following (Schmalz, 2016)
Age dummy	An indicator variable, based on founding year, hand-collected or from thomson reuters, equal to one for firms that are younger than 15 years (following Karpuz et al. (2020)) and zero otherwise
Dividend payer dummy	An indicator variable equal to one for firms that do not pay dividends in a particular year and zero otherwise
Whited and Wu index	Whited and Wu index of financial constraints following Whited and Wu (2006)
Kaplan and zingales index	Kaplan and zingales index of financial constraints following Kaplan and Zingales (1997) and Lamont et al. (2001)
CFF	Net cash flow from financing activities to sales from the previous year
CFI	Net cash flow from investing activities to sales from the previous year
Debt issuance	Cash inflows from the issuance of long-term debt to the total assets from previous year
Dividends	Total cash dividends to operating profit of the previous period. The dividend ratio higher than one is replaced with one. Firm-observations with negative operating profit but positive cash dividends are excluded

Variables	Definition
Panel A: Firm level variables
Family firm dummy (FFF)	An indicator variable that equals one if an individual or a family owns at least 25% of a firm’s voting rights and is related by blood or marriage to the founder of the company
Other ultimate owner	An indicator variable that equals one if the firm has an global ultimate owner owns that owns at least 25% of a firm’s voting rights, and the firm is not classified as founding family firm
Cash	Cash and short-term investments divided by the book value of total assets
CashToNetAssets	Cash and short-term investments divided by the book value of total assets net of cash and short-term investments
Ln(CashToNetAssets)	The natural logarithm of one plus the ratio of CashToNetAssets
Cash $^{N e t o f D e b t}$	Cash and short-term investments net of long-term debt divided by the book value of total assets
Size	The natural logarithm of the book value of total assets
Growth	The market-to-book ratio, defined as the book value of total assets minus the book value of equity plus the market value of equity, divided by the book value of total assets
Leverage	Book value of total debt divided by the book value of total assets
NWC	Working capital net of cash divided by the book value of total assets
Investment	The sum of capital expenditures, acquisitions, and R&D expenditures divided by the book value of total assets
Dividends	An indicator variable that equals one if a firm pays cash dividends in a particular year, and zero otherwise
Cash flow	Earnings after interests, dividends, and taxes but before depreciation divided by the book value of total assets
Variables	Definition
Cash flow volatility	The standard deviation of industry cash flow calculated as follows: the firm–year standard deviation of cash flow for the previous five years (minimum three years). industry cash flow volatility is then calculated as the average of the firm cash flow standard deviations for each country-industry in each year, classified by 48 Fama-French industries
Panel B: Country level controls
LMR	The arithmetic mean of the ratings of four Sub indicators of the economic freedom of the world (EFW) index by the fraser institute: hiring regulations and minimum wages, hiring and firing regulations, centralized collective bargaining, and mandated cost of worker dismissal. The indicators are normalized to range from 0 to 10. The index is defined as ten minus the aggregate index
$Δ$ LMR $^{L C}$	A continuous variable that equals to the changes in LMR if the change is greater than the mean of absolute LMR changes in the sample (0.2 units), and zero otherwise
LMR $^{L C - I}$	A categorical variable that is based on changes in LMR that are greater than the mean of absolute LMR changes in the sample (0.2 units). the variable is defined recursively starting in 2007 (sample beginning) and distinguish between changes that increased ( $+$ 1) and those that decreased (−1) employment protection
Inflation	The annual inflation rate
GDP growth	The real annual growth rate in gross domestic product
ln(GDP pc.)	The natural logarithm of gross domestic product in constant 2010U.S. dollars divided by total population
Panel C: Additional variables
Labor intensive firms	An indicator variable that equals one if a firm’s labor intensity is above the median of the labor intensity in the affiliate industry (48-Fama French industry classification) in a particular year, and zero otherwise. The labor intensity for each firm is calculated as the number of employees divided by total assets
Domestic firms	An indicator variable that equals one if a firm does not report any foreign assets in the previous three years. Ratio of local assets is computed as total assets minus international assets divided by total assets
Sales volatility	The firm–year standard deviation of sales to total assets calculated for the previous five years. In case that fewer than five years of lagged data are available, the standard deviation is calculated over all available years, but is set to missing if fewer than 3 years are available
Cash flow volatility	The firm–year standard deviation of cash flow to total assets calculated for the previous five years. In case that fewer than five years of lagged data are available, the standard deviation is calculated over all available years, but is set to missing if fewer than 3 years are available
Inheritance law permissiveness	The average of five indicators of the permissiveness of inherence law that differ depending on the surviving of spouse and the total number of children (Ellul et al., 2010)
Gini coefficient	Gini coefficient from OECD
Corporate tax	Corporate tax rate from OECD
Unionization	Natural logarithm of the trade union density rate from OECD
Business confidence	Yearly growth of the business confidence indicator from OECD
Macro-Economic uncertainty	One year ahead macroeconomic uncertainty index of Rossi and Sekhposyan (2015)
Crisis dummy	An indicator variable that equals one for the years 2008 and 2009 and zero otherwise
Age	Natural logarithm of (1 $+$ age). age is based on founding year, hand-collected or from Thomson Reuters
R&D-Intensity	An indicator variable that equals to one if industry-year median values for R&D expenses to sales from the previous year belong to the upper quartile and zero otherwise
Intangible assets	Intangible capital to sales from the previous year, adjusted for median industry values in a particular country-year
Size dummy	An indicator variable equal to one for firms that are smaller (in terms of total assets) than the sample median and zero otherwise, following (Schmalz, 2016)
Age dummy	An indicator variable, based on founding year, hand-collected or from thomson reuters, equal to one for firms that are younger than 15 years (following Karpuz et al. (2020)) and zero otherwise
Dividend payer dummy	An indicator variable equal to one for firms that do not pay dividends in a particular year and zero otherwise
Whited and Wu index	Whited and Wu index of financial constraints following Whited and Wu (2006)
Kaplan and zingales index	Kaplan and zingales index of financial constraints following Kaplan and Zingales (1997) and Lamont et al. (2001)
CFF	Net cash flow from financing activities to sales from the previous year
CFI	Net cash flow from investing activities to sales from the previous year
Debt issuance	Cash inflows from the issuance of long-term debt to the total assets from previous year
Dividends	Total cash dividends to operating profit of the previous period. The dividend ratio higher than one is replaced with one. Firm-observations with negative operating profit but positive cash dividends are excluded

Note(s):

This table presents variable definitions on a firm level (Panel A), country level (Panel B) and for additional variables (Panel C)

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