A.

In Corporate governance aspect:

I. In-country scope:
1. Cash holdings:

Harford et al (2008) use the ratio of cash to sales as a major ratio since they consider cash
as the essential liquid investment to assist the working capital needs of the firm. This ratio is
determined as the log of (cash and cash equivalents divided by total sales). Besides, Harford
et al (2008) also gauge cash holdings by two substitute . First, they use the cash and
marketable securities to net assets ratio which equal total assets minus cash and marketable
securities of Opler et al (1999). Next, they compute an industry-adjusted measure of cash to
sales ratio which are mentioned in the Fama and French 48 industry classifications.

2. Measuring corporate governance

Harford et al. (2008) evaluate the strictness of firm’s agency conflicts by these corporate
governance measures:

2.1. Antitakeover provisions and governance

The antitakeover provisions are generally used to calculate the of power sharing between
the managers and shareholders. Gompers et al. (2003) create GIndex of antitakeover
provisions with five rules in term of governance. These are: delay, protection, voting, state,
and other rules.

2.2. Ownership structure and executive compensation

Harford et al. (2008) using insider ownership, institutional interests, and pay sensitivity to
monitor issues resulting from ownership concentration and compensation for managers.
Jensen & Meckling (1976) claim that because of the division of the ownership and control,
managers have influence over the firm’s resources. Therefore, business should raise
ownership of managerial resources to reduce this managerial opportunism Jensen (1993).
The existence of large shareholder plays a significant role in addressing some agency
problems. Harford et al. (2008) use ownership concentration to measure managerial
opportunism. They measure::

T op−five insider holdings of common stocks

 Insider ownership =
Total share outstandings

Institution s' shares

 Institutional ownership =
Total share outstandings

Stock option grants(SOG)

 Top management pay mix =
SOG+ salary +bonus compensation

2.3. Board characteristics and governance

Board structure (size and independence) contribute an important role to board’s

effectiveness which affect firm value. About board size aspect, increase it creates two
effects: higher control versus more inflexible decision-making. Regarding board
independence, its increasing lead to the rise of monitoring effectiveness, decreasing
managerial opportunism and augmenting firm performance. Board size is calculated by the
number of directors and divides it by the log of total assets. Board independence is
computed as the ratio of independent directors to total directors.

2.4. Control variables

Opler et al. (1999)construct firm-specific control variables.

1. Firm size: deputy for takeover prevention

Firm size = The natural log of total assets

Short−term debt+ Long−term debt

2. Firm leverage =
Assets

3. Market to book ratio: deputy for growth opportunities

Market to book ratio =

Book value of assets−Book value of equity+ Market value of equity
Book value of assets

Earningsafter interest , dividend ,taxes , befor e depreciation

4. Cash flow =
Assaets

5. The standard deviation of the firm’s cash flows: deputy for business conditions which
is computed by using the firm’s standard deviation of the cash flow ratio for the past
ten years.

6. The net working capital to total assets: deputy for liquidity

The net working capital to total assets =

The current assets net of cash−Current liabilities
Assets

7. The ratio of R&D to sales: deputy for financial distress costs.

8. Capital expenditures to assets ratio and acquisition to assets ratio indicate whether
managers try to increase firm size.

9. A dividend dummy which equal 1 when a company pays a dividend.

10. Bond dummy which equal 1 when the company has S&P long-term ratings.

In a small number of observations, Harford et al. (2008) winsorize these variables at the
0.5% level on each tail.

2.5. The sample

Harford et al. (2008) utilized four sources to perform the survey involving 11,645 company-
year findings from 1872 enterprises in the 1993-2004 eras. First of all, the dataset of the
Investor Responsibility Research Center (IRRC) offers regular records for the years 1990,
1993, 1995, 1998, 2000, 2002 and 2004 on institutional anti-acquisition rules for
approximately 1,500 companies primarily collected from the S&P 500 and other major
companies. (Harford et al., 2008) have used this index to build the GIndex and EIndex, and
from 1996 to 2004 gather data about the Owner. Next, they use the Compustat Industrial
Annual dataset to gather consultancy-specific financial and insider knowledge. Thirdly,
(Harford et al., 2008) using the Executive Compensation (Execucomp) system to get
personal control, control of insiders and payment from leaders. At last, they collect data from
the Thomson Financial Institutional Ownership (Thomson) registry about corporate
ownership.

Harford et al. (2008) analyze the relationship between investor privileges and liquid assets
and different restrictions on company-specific parameters in a quantitative framework
utilizing bend-sectional multivariate methods. They obey Petersen (2009) for calculation
techniques, and then use t-statistics for the tests with fixed basic mistakes. The dependent
variable is corporate cash holdings and the log of the cash to sales ratio. The independent
variables are governance-related variables and firm specific factors affecting cash holdings.

II. In international scope (this will not include in our assignment)

1. Data collection

Combining with the shareholder rights measurement of LLSV (1998), Dittmar et al (2003)
use the sample of 11,591 companies of 45 countries which is collected from the Global
Vantage database for 1998 for this analysis. The cash ratio for the study is defined as the
cash and equivalents divided by net assets, where net assets exclude cash and cash
equivalents. The dependent variable of all models in this analysis is the logarithm of that
cash ratio as Opler et al (1999) work.

2. Variable construction

According the summary statistics table, countries are divided into two groups as the LLSV’s
shareholder rights variable was built. If the shareholder rights level is 3, 4, 5 then that
country belongs to high shareholder rights group, and its level is 0, 1, 2 then that country in
low shareholder rights group. Dittmar et al (2003) also use book value of assets variable
instead for firm size. As you know, both transaction costs and precautionary motive involve
investment opportunities and the market-to-book ratio substitute for investment
opportunities. Dittmar et al (2003) examine control variable is net working capital to net
assets ratio and they use that ratio to investigate with more liquidity assets held by the
company can be complement or substitute for cash level.

In term of Pooled cross-country regression table which use the reduced form model, Dittmar
et al (2003) explain firm cash level. All regression in this table contains industry (two-digit
SIC code main classifications) dummy variables and the numbers in brackets are p-values
based on robust standard errors. Models in this table provides regression models with the
level of shareholder rights variable, common law dummy, the external capital to GNP ratio
and the private credit to GDP ratio, respectively.

Moreover, Dittmar et al (2003) concentrate on 4 issues to conduct some additional tests

which estimates random effects model with random affects for country or industry pair and
on countries’ means.

B. In Family-control aspect:
In the aspect of choosing data and sample, we take companies from western European
countries into consideration and then we find that not only is financial together with stock
data given to us from Worldscope database and Amadeus database is what we are based
on to point out the data on governance structure essential to determine the level of family-
control but we are also provided some macroeconomic data for calculating variables by The
Key Economic Measures and EUROSTAT of the International Collaboration and Growth
Institution. According to 16 European nations taken notice of and the literature on cash
holdings mentioned above, we come to a decision of eliminating sample financial
companies, managed resources, nation-controlled businesses and atlast businesses with
less than five straight years of research from our study, since the calculation approach used
(GMM) need sat minimum five straight years of research to adjust for individual
uncontrollable variability and endogeneity troubles.

To go deeply into family samples, Astrachan, Klein, and Smyrnios (2002) find that meanings
of family enterprises are primarily based on property categorizations, family participation in
ownership and management, and demographic transitions. But we concentrate on a family's
ability to control and run the business. Anderson and Reeb's (2003) find that there is indeed
a concept of family business, which describes a company as a family business when the
establishing family owns equity in the company or founding family members are involved in
the council. La Porta, Lopez-de-Silanes, and Shleifer (1999) find that families controlling the
bulk of a company's stock also prefer to take part in the administration. Consequently,
relying on community ownership, if the majority stockholder is an owner and a part of the
family is included on the management board, we classify a company as an independently
owned corporation. For picking family businesses, we classify those companies in which
AMADEUS lists the controlling shareholder as an entity (persons, relatives). Next we check
the names of the committee members of managers systematically, and pick those where the
last addresses of the primary member correspond with the last names of the directors at
minimum once.

Here is the method which we are dependent on and run our work by. Pindado, Requejo, and
de La Torre (2011) find that the use of a panel information approach in model calculation
prevents us from getting inaccurate results because of the variability and possible
endogeneity of the parameters. In order to compensate for non-observable heterogeneity,
we must assume that each organization seems to have a set of attributes, including policy
and organizational culture, that stay unchanged but are non-observable to the investigator
Chi (2011) and that such non-observed features will influence the strategy of cash keeping.
We do need an operational factor approach monitoring the potential issue of causal
inference. Ogaki (1993) finds that the best alternative to have a GMM calculator, as it
integrates all other functional factor strategies as exceptional cases. Flannery and Hankins
(2013) find that previous research indicates that some calculation methods contribute to
skewed results in the sense of complex frameworks. Therefore, in order to escape the issue
of parameter estimation, we use all the correct-hand parameters in the systems stalled from
t−1 to t−4 (t−2 to t−5 for the gap of cash reserves) as tools for the numerical methods and
only one tool for the level calculations when deducing the device analysis tool used
throughout our analysis.

The research applies the methodological approach which was taken by Harford et al. (2012).
Besides that, it practices an instantaneous equations system in which cash reserves and
leverage, debt maturity, dividend payouts regarded as endogenous in corporate policies 12.
To determine the instrumented values for each of endogenous variable, the paper, then
follows a cash holding’s three-stage least square (3SLS) simultaneous regression model to
address and fix the endogeneity problem by setting out four different OLS regressions: cash
holdings, capital structure, debt maturity and dividend policy. Those configured values on all
categorical variables in the process are accepted as the expected values which
consequence from a regression of every endogenous variable. Then, the residuals from a
two-stage minimum square estimation is followed, this research a clear estimate of each
structural equation's covariance matrix of the system disturbances. Lastly, it simultaneously
estimates four equations by calculating the instrumented values as independent variables
from the first stage and covariance matrix from the second stage. The four equations of
baseline regression are calculated at the same time. While the analysis develops four
different regression models to be calculated at the same time, it only discusses the one in
which corporate cash holding (controlling shareholder) used in the status of the dependent
variable. Noted that dependent variable (Model 1) is merely a baseline regression’s model. 
New variables applied later to the model to cooperate with the main independent variable:
excess control rights (EXCESS):

Cash or Tunneling = 𝛼 + 𝛽 × EXCESS + 𝛽 × Control Variables + 𝛽 × 𝑌ear and Industry

0 1 i,t 2 i,t 3

Dummy +ℇ

Set effects for the year and industry were tested for in all the above four versions.

Results of Machine GMM model statistical analyses:

Our own method is to depend on 3 stages in the first three paragraphs and then to compare
family-controlled firms and non-family firms based on following formulas:

(1)CHit  = α0 + α1 CHi,t−1 +α2 SIZEit +α3Qit +α4 CFVOLit +α5 CFit +α6Iit +α7 NWCit
+α8 STDit +υit; 

(2)CHit =α0 +(α1 +θf FAMit) CHit−1 +α2 SIZEit +α3Qit +α4 CFVOLit +α5 CFit +α6Iit +α7
NWCit + α8 STDit + α9 FAMit + υit; 

(3)CHit = α0 + (α1 + ρfo FAMit OLDit + ρfy FAMit YOUNGit) CHit−1 + α2 SIZEit + α3Qit
+ α4 CFVOLit + α5 CFit + α6Iit + α7 NWCit + α8 STDit + α9 FAMit + α10 YOUNGit + υit.

Where: CH: cash holding variable; SIZE: asset size; Q: Tobin’s Q; CFVOL cash flow
volatility; CF: cash flow of the firm; I: capital expenses; NWC: working capital net of cash;
STD: short-term debt; F: mean for family firms and NF: mean for non-family firms 

CH is the independent variable. SIZE, Q, CFVOL, CF, I, NWC, STD, F, NF are dependent
variables

The word error is divided into four separate parts: ηi reflects the variability of the individual
business and is presumed to be unchanged during our test duration; tdt serves chumps of
the year that might reflect some macroeconomic transition over the years; cdi portrays
chumps in the region; and εit is an unintended disruption.

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