Cash Holdings and ESG: The Moderating Effect of Family Control and Family CEOs

This study investigates the relationship between cash holdings, family firms, and ESG drawing on a comprehensive dataset spanning 18 European countries from 2017 to 2023. Aligned to the trade-off theory predictions we observe an inverted U-shaped relationship between cash reserves and firms’ ESG scores, indicating that the positive correlations between cash holdings and ESG, exceeding a certain threshold leads to a marginal negative impact of cash on ESG. Additionally, our results reveal that family control positively influences the relationship between cash holdings and ESG, suggesting that family-controlled firms are more effective in utilizing higher levels of cash reserves to drive ESG performance. Importantly, we observe the negative moderation in family firms of the presence of a family CEO on the relationship between cash holdings and ESG outcomes.