Direct and Mediated Associations Among Ownership Structure,Cash Holdings and Firm Value: The Case of Jordanian Insurance Firms

Abstract

This study aims to investigate the direct and mediated associations among ownership structure (OS), cash holdings (CHs) and firm value (FV). It provides empirical evidence from insurance firms listed in Jordan over the period from 2009 to 2018 using panel data analysis method. The findings conclude that ownership concentration positively affects CHs, whilst the board of directors’ ownership, organizational ownership and foreign ownership do not. Additionally, the CHs negatively affect FV. At the same time, the board of directors’ ownership, organizational ownership and foreign ownership as proxies for OS directly affect FV, and these proxies also have an indirect effect on FV by the mediation of CHs. Finally, this study recommends future research to study more determinants of FV, especially in different countries, such as MENA countries.

Keywords

Ownership Structure Firm Value Cash Holdings Liquidity Jordanian Firms Insurance Firms

Executive Summary

The purpose of this study is to investigate the direct and mediated associations among ownership structure (OS), cash holdings (CHs) and firm value (FV). This study provides empirical evidence from Jordanian insurance firms, where a panel data analysis method is used in this study. The study data are collected from the annual reports of the targeted firms during the study period (2009 until 2018). This study concluded that ownership concentration positively affects CHs, whilst the board of directors’ ownership, organizational ownership and foreign ownership do not affect. This means that the higher the ownership concentration is, the higher the CHs are. The first reason for this result may be the higher the ownership concentration leads to decrease the governance level in the firms, where their contributions in the operational decisions may be increased compared to dispersed ownership, and this is supported by agency theory. The results also indicated that CHs negatively affect FV. In other words, the higher the CHs are, the lower the FV is. As such, the calculation of FV is based on the exclusion of cash and cash equivalents from its assets, and, thus, the higher the cash and cash equivalents are, the lower the FV is.

The study also concluded that board of directors’ ownership, organizational ownership and foreign ownership affect FV, where board of directors’ ownership and organizational ownership negatively affect while foreign ownership positively affects. In other words, the higher the board of directors’ ownership and organizational ownership is, the lower the FV is. In contrast, the higher the foreign ownership is, the higher the FV is. In addition, CHs mediate the relationship between board of directors’ ownership, organizational ownership and foreign ownership as proxies for OS with FV.

The findings of this study can help investors and other interested parties to understand the determinants of FV, and how they can avoid the negative determinants to maximize the FV. Investors and other interested parties can adopt and forecast the deterministic and practical scenarios to identify the fit OS that affects FV; this could help determine the factors that encourage investors to invest in the firm that observes fair wealth distribution in order to ensure the firm’s sustainability. Finally, this study recommends future research to study more determinants of FV, especially in different countries, such as MENA countries, where it may provide different findings.

Introduction

The environmental changes in global economics, such as increase in the number of large-size firms and increase in foreign investments in the local and global markets, as well as the expansion of economic activity, require more interest by these economics in the field of separation of ownership from management (Berle & Means, 1932; Jensen & Meckling, 1976). The separation of ownership from management becomes one of the important issues in the firms because it plays a vital role in improving the control levels and, thus, reducing the agency costs associated with the separation of ownership from management (Gyampah et al., 2019).

Recently literature (e.g., Pérez et al., 2019) mentioned that the separation of ownership from management aims to reduce the conflict of interest practices in the firms through limiting unethical practices. In the other words, the separation of ownership from management works to protect shareholders, especially individual shareholders who do not have sufficient control on the firms’ performance, and their effect on the operation decisions will be limited (Bassey et al., 2019). As a result, it allows managers in a firm to conduct the business activities by adopting real practical models that improve the control levels in a firm and, thus, increase its performance.

According to agency theory, several categories of shareholders (e.g., directors, shareholders, managerial ownership, government entities, and others) play a key role in improving firm’s performance, and this may have an effect on increasing FV (Afifa et al., 2020). Gyampah et al. (2019) mentioned that there is a relationship between OS and firms’ performance, and found that firms’ performance is greater in the locally owned firms compared to foreign-owned. They argued that locally owned firms have more flexibility in controlling of the firms’ performance compared to foreign-owned. Empirical studies (e.g., Kao et al., 2019) argued that there is a negative relationship between ownership concentration and the firm’s performance, because it has effects on the independence of decisions and, thus, it may negatively affect the FV. However, Chancharat and Chancharat (2019) documented that there is no relationship between the OS and firm performance, especially in emerging markets. They also discussed the board independence and governance practices by the firms in emerging markets within the low level compared to those in developed markets. Therefore, this is may have an effect on the firm’s performance as well as the FV of emerging markets.

However, the cash is an important issue in the firms, especially with the environmental uncertainty that affects the business environment (Almeida et al., 2014; Opler et al., 1999). The CHs preserve the firm’s flexibility to respond to unexpected events (Denis, 2011). Excess cash enables firms’ managers to pursue their own interests, where they will aim to spend it on decreasing investments and expenses, which affect the firm’s performance (Harford et al., 2008; Tayem et al., 2019). On the other side, concerns for shareholders of the firm arise when there are excess different levels of CHs (Tayem et al., 2019). Therefore, the current study aims to investigate the effect of OS on CHs for Jordanian firms, where several categories of shareholders may improve controlling the different levels of CHs for the firms because excess CHs may be a reason of agency conflicts. The conflicts of interests are expected to be major with high level of CHs, and the opposite is true. In other words, the lower CHs are, the lower the conflicts of interests are. Therefore, this study aims to investigate the role of CHs as a mediator factor in the relationship between OS and FV for Jordanian firms.

Subsequently, our contributions from this study are presented as follows: first, it aims to investigate the direct and mediated associations among OS, CHs, and FV. Thus, it aims to increase the body of the literature in the same field. Second, it provides empirical evidences from a developing market, where we can note that there are limited attempts that have examined the contexts of this study together in developing markets, such as MENA markets, while there are several attempts from the developed markets. Third, there are different visions from prior literatures about the relationships between the contexts of this study. Hence, the current study aims to provide more explanations through empirical evidence about the contexts of this study.

Literature Review and Hypotheses Design

The next sections present the OS and CHs, CHs and the FV, then the role of CHs in the relationship between OS and FV.

Ownership Structure and Cash Holdings

According to Subramaniama et al. (2011), OS is an important indicator for a firm’s governance, where diversified OSs support the governance practices in order to reduce the conflict of interests between managers and shareholders. They noted that the higher the diversified OSs are, the higher are the governance practices, and hence the control level increases. At the same time, they also noted that the firms that diversified their OSs hold less cash than their focused counterparts; this is in order to reduce the costs that link with it. In other words, the firms with good control level aim to hold minimum cash to avoid wasted and unnecessary costs (Tangjitprom, 2012).

Azinfar and Shiraseb (2016) also discussed that OS is one of the important factors that affect the level of CHs, where OS may contribute to firms’ behavioural change. They documented that institutional, managerial, and foreign ownership affect firms’ CHs, because the different monitoring activities by different shareholders contribute to adopt high-control level on cash. The balance between CHs and cash needs during the period is most important in the economic health of commercial activities, and, thus, less of a gap in this balance reflects the higher economic health of commercial activities (Ghorbani & Adili, 2012). However, Aghaee et al. (2009) argued that more cash contributes to not waste investment opportunities, and, at the same time, lack of more cash does not cause heavy losses.

Empirical literature (e.g., Namazi & Kermani, 2009) has argued that managerial ownership contributes to increase monitoring on business activities, including cash flows, because, when managers own a good percentage of the firm’s shares, their motivations toward monitoring will improve, and they will work hard on improving the effectiveness and efficiency of operational activities in the firm, hence the FV will increase. Other empirical literature (e.g., Jensen, 1986) discussed that the control on costs in family business firms is better than others, because the shareholders in the family business firms focus on increasing the market value of their firms through reducing the opportunistic earnings management (Almasarwah, 2019). Hence, their control on cash flows will improve.

Form the backdrop, the first hypothesis in this study is presented as follows:

H₁: There is a relationship between ownership structure and cash holdings in Jordanian insurance firms.

Cash Holdings and Firm Value

Opler et al. (1999) and Rocca and Cambrea (2019) argued that managers who maximize shareholder value would establish the firm’s cash liquidity level in such a way that the marginal cash benefits are equal to the marginal costs of maintaining these assets. The main benefits of maintaining cash liquidity are that the firm saves transaction costs by raising funds, also avoiding the liquidation of assets to make payments, as well as that the firms have independence to finance investments with these liquid assets, without being harmed when other sources are not available. The main costs of maintaining cash liquidity derive from the discount of the liquidity premium, also defined as the opportunity cost of maintaining liquidity.

Based on an agency theory, cash liquidity is maintained by ‘entrenched’ managers, because they prefer to keep cash rather than paying more dividends to shareholders (Bates et al., 2009). In addition, by maintaining more liquidity, managers increase the value of the assets under their control and gain more power over the firm’s investment decisions (Darko et al., 2018). Managers would also escape obtaining capital externally, which, in turn, allows them not to disclose information about investment projects to the foreign investor market (Ferreira & Vilela, 2004).

A first determinant of cash liquidity would be the magnitude of the costs of accessing external financing. Those firms with easy access to the capital markets and good reputation with credit rating agencies should have lower transaction costs in accessing the debt markets (Feng et al., 2019). Therefore, they are expected to maintain less liquidity. Similarly, those firms with great investment opportunities are likely to maintain greater liquidity because the cost of a lack of cash is to fail to carry out these opportunities (Caprio et al., 2020).

Mikkelson and Partch (2003) and Rocca and Cambrea (2019) discussed whether higher levels of liquidity can hinder operational performance, in the sense that large cash reserves induce managers to use assets less efficiently, since the availability of cash to spend is excessively large. They note that, in reality, higher cash reserves are associated with better operating performance. Hence the second hypothesis in this study aims to examine the relationship between CHs and FV, and it can be presented as follows:

H₂: There is a relationship between cash holdings and firm value in Jordanian insurance firms.

Role of Cash Holdings in the Relationship Between Ownership Structure and Firm Value

Constant with the discussions above, empirical evidence discussed the role of CHs in the relationship between OS and FV, where Ozkan and Ozkan (2004) argued that there is a significant effect for the managerial ownership on the CHs, and the higher managerial ownership contributes to increase the interests of the managers toward increased cash flows, which positively effects CHs, hence the FV will increase. On the other side, Drobetz and Grüninger (2007) documented that managerial ownership has no effects on CHs, and there is also a negative relationship between tangibility asset and firm size with CHs. The managers in a firm focus on spending cash in capital assets in order to increase the firm size instead of keeping it in hand.

Furthermore, other empirical evidence (e.g., Isshaq et al., 2009) mentioned that there is no effect for inside ownership and CHs on the FV proxied by share price, where the higher inside ownership negatively affects the governance practices in a firm, and, therefore, the lower the governance practices are, the lower is the control level on cash flows. Hence, the effect of inside ownership and CHs on the FV will be mostly limited. Harford et al. (2008) documented that the acquisitions and inside ownership in a firm negatively affect CHs, where managers work on spending cash on capital expenditures and acquisitions rather than having it in hand, and, at the same time, they believe that excess cash in a firm means lower profitability and, thus, this will negatively affect the FV. Kusnadi (2011) also noted that the less effective governance practices are, the higher the accumulated cash is, and this negatively affects the FV, especially for firms with a pyramidal OS, family-controlled firms, as well as firms with a single leadership structure. In addition, accumulated cash may increase the cost and, thus, the profitability decreases, and this is may also negatively affect FV.

Finally, the third and fourth hypotheses can be presented as follows:

H₃: There is a relationship between ownership structure and firm value in Jordanian insurance firms.

H₄: Cash holdings mediate a relationship between ownership structure and firm value in Jordanian insurance firms.

Methodology

Population and Sampling

The population of this study includes all insurance firms listed in Jordan during the years of 2009 until 2018, where there are 24 insurance firms listed until the year 2019, of which 20 insurance firms have available data. Thereby the sample of this study consists of 20 insurance firms, which have available data during the period, giving a total of 200 observations for each variable.

Data and Analysis Method

A panel data analysis method is used in this study. The study data are collected from the annual report of the targeted firms during the study period (2009 until 2018).

Measurement of Variables

Based on the aims of this study, the OS in the study model is an independent variable, the FV is a dependent variable, and CHs are as a mediator variable. In addition, the study uses several control variables, such as a firm’s working capital (WC) ratio, earnings per share (EPS), dividend per share (DPS), and firm growth (GROWTH). The next sections indicate the measurement of each variable (see Table 1).

Table 1.

Equations of the Study Variables

Variable	Code	Measurement Equation	References
Board of directors’ ownership	BOD	$\frac{T O B O D i . t}{C S i . t}$	Andreou et al. (2014)
Concentrated ownership	CON	$\frac{T O C O N i . t}{C S i . t}$	Pérez et al. (2019)
Organizational ownership	INST	$\frac{T O I N S T i . t}{C S i . t}$	Affan et al. (2017)
Foreign ownership	FOREIGN	$\frac{T O F O R E I G N i . t}{C S i . t}$	Farooque et al. (2007)
Firm value	FV*	$L n (F V i . t) = M C i . t + T o t a l D e b t i . t - C i . t$	Caprio et al. (2020); Darko et al. (2018)
Cash holdings	CH	$\frac{T o t a l C a s h a n d C a s h E q u i v a l e n t s i . t}{T o t a l A s s e t s i . t}$	Bigelli and Vidal (2012); Caprio et al. (2020)
Working capital	WC	$\frac{T o t a l C u r r e n t A s s e t s i . t}{T o t a l C u r r e n t L i a b i l i t i e s i . t}$	Sensini (2020)
Earnings per share	EPS	$\frac{F i r m s E a r n i n g s (N e t i n c o m e) i . t}{T o t a l N u m b e r o f O r d i n a r y S h a r e s O u t s \tan d i n g i . t}$	Geetha and Swaaminathan (2015)
Dividend per share	DPS	$\frac{F i r m s C a s h D i v i d e n d s i . t}{T o t a l N u m b e r o f O r d i n a r y S h a r e s O u t s \tan d i n g i . t}$	Kalcheva and Lins (2007)
Firm growth	GROWTH	$\frac{T o t a l A s s e t s i . t - T o t a l A s s e t s i . (t - 1)}{T o t a l A s s e t s i . (t - 1)}$	DeAngelo et al. (2006)

Source: Equations of the study variables used by authors.

Ownership Structure

The current study determines the following OSs dimensions:

Board of directors’ ownership: The study measures board of directors’ ownership by dividing total number of shares owned by board of directors (TOBOD) to total number of outstanding shares (CS; Andreou et al., 2014).

Concentrated ownership: The study measures the ownership concentration through dividing the majority of shares (5% and more) held by few owners (TOCON) by the total number of outstanding shares (CS; Pérez et al., 2019).

Organizational ownership: The current study measures organizational ownership through dividing shares owned by general and private companies (TOINST) to total outstanding shares (CS; Affan et al., 2017).

Foreign ownership: This is calculated by dividing shares owned by foreigner’s investors (TOFOREIGN) to total outstanding shares (CS; Farooque et al., 2007).

Firm Value

Based on the prior literature, the FV can be calculated through firm’s current market price (Caprio et al., 2020; Darko et al., 2018).

Cash Holdings

This study calculates the CHs ratio through dividing the total cash and cash equivalents by total assets, where this ratio shows the firm’s ability to fulfil its liabilities and/or to obtain investment opportunities (Alsufy et al., 2020; Bigelli & Vidal, 2012; Caprio et al., 2020).

Control Variables

The study uses four control variables as follows:

Working capital (WC): It is calculated through dividing the total current assets by total current liabilities (Sensini, 2020).

Earnings per share (EPS): This is a firm’s earning per outstanding share of common stock during the period (Geetha & Swaaminathan, 2015).

Dividend per share (DPS): This is the sum of declared cash dividends issued by a firm for per ordinary share outstanding over a period (Kalcheva & Lins, 2007).

Growth: This is calculated by the percentage of changes in total assets for the firm during the period (DeAngelo et al., 2006).

Data Analysis and Results

Data Validity

Linear regression has a number of assumptions that must be met before testing the hypotheses. For instance, it is important to execute the following tests in order to judge the reliability and validity of data.

Multicollinearity

The validity of the regression model depends on the assumption of the independence of independent variables. If this assumption is not achieved, the model cannot be considered appropriate. This problem affects the process of estimating model parameters, and, thus, it affects the efficiency of the model in general (Gujarati, 2004). Two methods are used to detect the problem of multiple linear correlations. The first is the Pearson correlation test between the independent variables in the regression model. The second method is to find the variance inflation factor (VIF) and tolerance (TOL), where the VIF shows how the high correlation increases the instability of the estimated coefficients.

The results in Table 2 show no multicollinearity among independent variables, where correlation coefficient (Beta) appears between (−0.214 and 0.674). Also, Table 3 presents that VIF and tolerance values for all independent variables in the study model were less than 10, and more than 0.2, respectively. This means that panel data models in the current study do not suffer from any multicollinearity problems.

Table 2.

Correlation Matrix

Variable	BOD	CON	INST	FOREIGN	WC	EPS	DPS	GROWTH	CH
BOD	1.000
CON	0.674	1.000
INST	0.203	0.203	1.000
FOREIGN	0.444	0.634	−0.214	1.000
WC	−0.072	−0.027	−0.172	−0.076	1.000
EPS	0.206	0.242	0.172	0.067	−0.046	1.000
DPS	0.208	0.188	0.426	−0.023	−0.070	0.470	1.000
GROWTH	0.268	0.312	0.141	0.140	0.041	0.546	0.214	1.000
CH	0.059	0.105	0.074	−0.019	0.242	0.015	−0.093	0.092	1.000

Source: Correlation matrix among the study variables calculated through the Pearson correlation coefficient.

Table 3.

Collinearity Statistics

Variable	VIF	TOL
BOD	1.886	.0530
CON	2.931	.0341
INST	1.633	.0612
FOREIGN	.2196	0.455
WC	1.147	0.872
EPS	1.781	0.561
DPS	1.589	0.629
GROWTH	1.535	0.651
CH	1.124	0.890

Source: Collinearity statistics calculated through the VIF and TOL.

Stationary Test

Time series analysis is one of the statistical methods that address the behaviour of phenomena and their interpretation over extended time periods. The stability of time series is an important topic in many applications that adopt a panel data, as the instability of the data gives misleading results for the values of the (R²) and the value of (F).

Unit root test was performed in order to test stability of time series. A Levin–Lin–Chu test was performed to test whether the study variables contained the unit root; when the Levin–Lin–Chu test is performed with the unit root, the significance level will be above 5%. Table 4 shows that p-values for all variables are less than 5%, and this ensures that all variables are stable over time; therefore we reject the hypothesis of the existence of the unit root.

Table 4.

Levin–Lin–Chu Test

Variable	P-value	Statistic
BOD	0.000	−58.263
CON	0.000	−2.962
INST	0.000	−27.778
FOREIGN	0.002	−2.948
WC	0.000	−4.599
EPS	0.000	−5.565
DPS	0.000	−4.898
GROWTH	0.000	−10.683
CH	0.000	−6.907
FV	0.000	−3.910

Source: Unit root test calculated through Levin–Lin–Chu test.

Descriptive Results

Table 5 shows the findings of descriptive analysis tests using mean and standard deviation (SD). It shows that mean of WC was 2.307 with SD = 1.059. This indicates that Jordanian insurance firms hold a high liquidity, and, thus, their ability to fulfil their current obligations under a high level. The main of CH was 0.213 with SD = 0.161, which means that these firms hold 21.3% of their total assets as cash and cash equivalents to meet any future conditions.

Table 5.

Descriptive Statistics

Variable	Mean	SD
BOD	0.551	0.205
CON	0.639	0.189
INST	0.195	0.195
FOREIGN	0.236	0.299
WC	2.307	1.059
EPS	0.047	0.118
DPS	0.031	0.048
GROWTH	0.049	0.104
CH	0.212	0.161
FV	16.812	0.789

Source: Descriptive statistics are used to summarize the data.

The means of EPS and DPS were 0.047 (SD = 0.118) and 0.031 (SD = 0.048), respectively. This means that, during the study period, the firms achieved EPS as average 0.047 JD, as well as these firms declared cash dividends for each share as average 0.031 JD. As such, these indicators show a good performance for Jordanian insurance firms during the study period compared to other firms listed in ASE during the same period, and this is also shown in the mean of GROWTH, where it was 0.049 with SD = 0.104. The mean value of GROWTH indicates that Jordanian insurance firms increased their assets by 4.9% during the period.

Then, the highest mean value among OS dimensions was 0.639 with SD = 0.189 and this refers to ownership concentration (CON), which means that 63.9% of Jordanian insurance firms’ shares were held by some investors (who own more than 5%) during the study period. As such, the nature of OS in Jordanian insurance firms is more concentrated than dispersal. In addition, the mean of BOD was also high (0.551 with SD = 0.205), while the mean of FOREIGN was 0.236 with SD = 0.299. Additionally, the organizational ownership was the lowest OS dimensions in Jordanian insurance firms, where the mean of it was 0.195 with SD = 0.195. Finally, the mean of ln(FV) was 16.812 with SD = 0.789. This indicates as to the importance of Jordanian insurance firms in the Jordanian market.

Regression Results and Discussion

Panel data contain observations of multiple phenomena obtained over multiple time periods for the same firm (obtained by combining time-series and cross-sectional data). The idea of combining time-series and cross-sectional data is to arrive at a better estimate of the model. Further, the methodology of the study relied on collecting financial data using time series data extending from the year 2009 to the year 2018, which are also cross-sectional data where the study sample included 20 firms. Thus, each firm represents a cross-section.

Regression models are divided into two models, namely the Fixed Effect model, and the Random Effects model. A Hausman test is conducted to choose either of the two previous models to test the panel data. Null hypothesis (H₀) indicates to accept the random effects model versus the alternative hypothesis (H₁) that indicates acceptance of the fixed-effects model. If the value of Prob-value is ≥5%, the random-effects model will be chosen, and then, if the value of Prob-value is less than 5%, the fixed effect approach will be selected (Baltagi et al., 2010).

Table 6 indicates that the Chi-Square value for the regression model amounted to 14.314, and the Prob-value was 0.112, thus, the null hypothesis is accepted. In the other words, the appropriate estimation method is a random-effects model.

Table 6.

Hausman Test

Correlated Random Effects—Hausman Test
Test Cross-section Random Effects
Test summary	Chi-sq. statistic	df	Prob.
Dependent variable: FV	14.314	9	0.112

Source: Appropriate regression model was chosen by Hausman test.

The first objective of this study is to examine the effect of OS on CHs. The second objective is to examine the effect of CHs on FV. The third objective is to examine the effect of OS on FV. Finally, the fourth objective is to examine the effect of CHs in the relationship between OS and FV. Therefore, four different regression models in this study are estimated. The following parts present the results of the regression models.

H₁: There is a relationship between ownership structure and cash holdings in Jordanian insurance firms.

Table 7 shows that Adjusted R-square of the model was 0.081, which means that the model explains 8.1% from the changes in CHs, whereas Prob (F-statistic = 3.072) was 0.003, which means that all OSs in the model combined affect the CHs. This result is matched with previous studies (e.g., Khan & Tanveer, 2016), but, at the same time, does not match with the findings of Ping et al. (2011). Consequently, the results display ownership concentration, WC ratio and DPS separately affect CHs. At the same time, board of directors’ ownership, organizational ownership, foreign ownership, EPS and firm’s growth separately do not affect CHs. In addition, ownership concentration and WC ratio positively affect CHs. Furthermore, DPS negatively affects CHs. As a conclusion, the first hypothesis is partially accepted.

Table 7.

Regression Results of the First Hypothesis

Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	0.036	0.052	0.693	0.489
BOD	−0.030	0.078	−0.380	0.705
CON	0.198	0.109	1.822	0.070*
INST	0.085	0.074	1.146	0.253
FOREIGN	−0.079	0.060	−1.318	0.189
WC	0.036	0.011	3.335	0.001***
EPS	0.051	0.127	0.403	0.687
DPS	−0.625	0.290	−2.155	0.033**
GROWTH	0.102	0.137	0.744	0.458
R-squared	0.120
Adjusted R-squared	0.081
F-statistic	3.072
Prob(F-statistic)	0.003***

Source: A random-effects regression model for the first hypothesis.

Notes: *,** and *** = p-value < .10, .05 and .01, respectively.

CHi.t = α + β₁ BOD_i.t + β₂ CON_i.t + β₃ INST_i.t + β₄ FOREIGN_i.t + β₅ WC_i.t + β₆ EPS_i.t + β₇ DPS_i.t + β₈ GROWTH_i.t + (ε_i + v_i.t).

The ownership concentration in the firms aims to effectively diversify their wealth in order to decrease the risks, and, thus, they need more liquid assets (Ha & Tai, 2017). At the same time, they also aim to hold more cash in order to meet short-term obligations (Opler et al., 1999). In contrast, Ferreira and Vilela (2004) documented that there is negative relationship between ownership concentration and CHs, which means that the higher the ownership concentration, the lower the CHs are. This is because they aim to reduce the costs and the risks of excess liquidity in order to improve their earnings. Moreover, different results from previous studies (e.g., Xingquan & Jie, 2007) noted that there is no effect for the ownership concentration and leadership structure on CHs and, at the same time, management ownership positively affects CHs. This is due to governance practices in the firms, where Khan and Tanveer (2016) documented that the governance practices of firms affect the CHs. Fewer governance practices mean fewer control levels, hence fewer control levels contribute to increase agency conflicts (Ping et al., 2011).

H₂: There is a relationship between cash holdings and firm value in Jordanian insurance firms.

Table 8 shows the results of the effect of CHs on FV. Results show that Adjusted R-square was 0.445 and Prob (F-statistic) was less than 5%. Thus, the second hypothesis is accepted, which means there is relationship between CHs and the FV in Jordanian insurance firms. Consequently, the results also show that the CHs and WC negatively affect FV, whereas DPS positively affects, whereby Kalcheva and Lins (2007) confirmed that ‘firm value can be increased if controlling managers pay dividends’. The result is matched with several previous studies (e.g., Rocca & Cambrea, 2019; Tayem et al., 2019), but does not match with the work of Darko et al. (2018), and Caprio et al. (2020).

Table 8.

Regression Results of the Second Hypothesis

Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	17.224	0.130	132.325	0.000***
CH	−1.830	0.149	−12.249	0.000***
WC	−0.040	0.019	−2.112	0.036**
EPS	0.137	0.172	0.794	0.428
DPS	1.772	0.534	3.318	0.001***
GROWTH	0.200	0.178	1.120	0.264
R-squared	0.457
Adjusted R-squared	0.445
F-statistic	32.708
Prob(F-statistic)	0.000***

Source: A random-effects regression model for the second hypothesis.

Notes: *,** and *** = p-value < .10, .05 and .01, respectively.

FVi.t = α + β₁ CH_i.t + β₂ WC_i.t + β₃ EPS_i.t + β₄ DPS_i.t + β₅ GROWTH_i.t + (ε_i + v_i.t).

Excess cash may contribute to increase the agency costs and debts costs, as well as promote unnecessary spending, hence will negatively affect FV (Tayem et al., 2019). For example, it enables firms’ managers to pursue their own interests (Harford et al., 2008). Rocca and Cambrea (2019) documented that large cash reserves induce managers to use assets less efficiently, and this also will negatively affect FV. In contrast, Caprio et al. (2020) documented that more cash in the firms contributes to hold great investment opportunities because the cost of a lack of cash is to fail to carry out these opportunities, thus excess cash may increase the investments, hence the FV increases.

H₃: There is a relationship between ownership structure and firm value in Jordanian insurance firms.

Table 9 indicates that Adjusted R-square of the effect of OS on FV was 0.096, which means that all OS combined explains 9.6% from the changes in FV, whereas Prob (F-statistic = 3.496) was 0.001. Therefore, the regression model of the third hypothesis is a fit under a significant level (less than 0.01). Also, the results in Table 9 indicate that board of directors’ ownership, organizational ownership, foreign ownership, WC ratio, and DPS separately affect FV, as well as ownership concentration, EPS and firm’s growth separately do not affect. Consequently, foreign ownership and DPS positively affect FV, while board of directors’ ownership, organizational ownership and WC ratio negatively affect. Finally, the third hypothesis is partially accepted.

Table 9.

Regression Results of the Third Hypothesis

Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	17.042	0.239	71.301	0.000***
BOD	−0.247	0.153	−1.614	0.091*
CON	−0.043	0.238	−0.179	0.858
INST	−0.809	0.408	−1.984	0.049**
FOREIGN	0.733	0.347	2.113	0.036**
WC	−0.053	0.025	−2.138	0.034**
EPS	−0.173	0.252	−0.687	0.493
DPS	1.602	0.724	2.213	0.028**
GROWTH	0.113	0.247	0.455	0.650
R-squared	0.134
Adjusted R-squared	0.096
F-statistic	3.496
Prob(F-statistic)	0.001***

Source: A random-effects regression model for the third hypothesis.

Notes: *,** and *** = p-value < .10, .05 and .01, respectively.

FVi.t = α + β₁ BOD_i.t + β₂ CON_i.t + β₃ INST_i.t + β₄ FOREIGN_i.t + β₅ WC_i.t + β₆ EPS_i.t + β₇ DPS_i.t + β₈ GROWTH_i.t + (ε_i + v_i.t).

The result of third hypothesis matches with the work of Berle and Means (1932), Bolton and Scharfstein (1990), Bassey et al. (2019) and Gyampah et al. (2019). At the same time, it does not match with the work of Almasarwah (2019), where they noted that the control level on the firm’s performance is better in the firms that have higher concentrated ownership than other firms, and this is will positively affect FV. For example, the higher concentrated ownership will lead to decrease the operational costs; hence the performance increases as well as the FV will also increase. In contrast, Tangjitprom (2012) documented that diversified OSs are an important indicator for the sound governance practices in firms, where the higher the sound governance practices are, the higher will be the control on the operational firm’s performance, hence the costs decrease and finally FV increases. Bassey et al. (2019) also mentioned that diversified OSs contribute to improve the managers’ efficiency and reduce the agency costs, hence the FV increases.

H₄: Cash holdings mediate a relationship between ownership structure and firm value in Jordanian insurance firms.

The results in Table 10 show that the insertion of CHs as a mediating variable improves the ability of the study model, where the Adjusted R-square rose from 0.096 to 0.493, which means that CHs highly mediate the relationship between OS and FV (Prob (F-statistic) is less than 1%). Especially, CHs mediate the relationship between board of directors’ ownership, organizational ownership and foreign ownership as proxies for OS with FV, although the results of the first hypothesis above indicated that these proxies do not have direct relationships with CHs. Also, CHs do not mediate the relationship between ownership concentration as another proxy for OS with FV. As a conclusion, the fourth hypothesis is partially accepted. This result is matched with the work of Harford et al. (2008) and Kusnadi (2011), but, at the same time, does not match with the work of Drobetz and Grüninger (2007) and Isshaq et al. (2009).

Table 10.

Regression Results of the Fourth Hypothesis

Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	17.317	0.188	92.128	0.000***
BOD	−0.204	0.113	−1.802	0.073*
CON	−0.108	0.174	−0.620	0.536
INST	−0.465	0.252	−1.843	0.067*
FOREIGN	0.724	0.280	2.583	0.011**
CH	−1.766	0.142	−12.416	0.000***
WC	−0.039	0.018	−2.154	0.033**
EPS	0.103	0.165	0.624	0.534
DPS	1.547	0.520	2.976	0.003***
GROWTH	0.234	0.171	1.371	0.172
R-squared	0.516
Adjusted R-squared	0.493
F-statistic	22.462
Prob(F-statistic)	0.000***

Source: A random-effects regression model for the fourth hypothesis.

Notes: *,** and *** = p-value < .10, .05 and .01, respectively.

FVi.t = α + β₁ BOD_i.t + β₂ CON_i.t + β₃ INST_i.t + β₄ FOREIGN_i.t + β₅ CH_i.t + β₆ WC_i.t + β₇ EPS_i.t + β₈ DPS_i.t + β₉ GROWTH_i.t + (ε_i + v_i.t).

Conclusion

This study concluded that ownership concentration positively affects CHs, whilst the board of directors’ ownership, organizational ownership and foreign ownership do not affect. This means that the higher the ownership concentration is, the higher the CHs are. The first reason for this result may be the higher the ownership concentration leads to decrease the governance level in the firms, where their contributions in the operational decisions may be increased compared to dispersed ownership, and this is supported by agency theory. The results also indicated that CHs negatively affect FV. In other words, the higher the CHs are, the lower the FV is. As such, the calculation of FV is based on the exclusion of cash and cash equivalents from its assets, and, thus, the higher the cash and cash equivalents are, the lower the FV is.

Ultimately, while testing the first hypothesis, only one dimension (ownership concentration) of OS is statistically significant. However, when the third and the fourth hypotheses are tested, all other dimensions of OS are significant except for the ownership concentration. While a degree of concentration of ownership can generate profit, it can create macro-level negative externalities for competitiveness, wealth distribution and fiscal accountability. On the micro-level, it can be detrimental externalities on firm sustainability and minority shareholder interests. The current extent of accumulation of ownership encourages neither equal profit for minority shareholders, nor respect for the interests of customers impacted by oligopolies, nor the general wellbeing of people affected by intensive firm tax planning. Thus, all these roles may decrease the direct effect of ownership concentration on FV in the long term. As a result, a new mix of economic and firm governance approaches is required for firm ownership. Focus is required on the responsibility of majority owners toward minorities and on the special rights of minority investors and directors representing them. At the same time, stronger checks for major fund managers need to be introduced. There are other remedies needed to counter concentration, not only to improve firm governance, but essentially to address a surge of unprecedented protests in the markets against unequal wealth distribution. On the other hand, having several categories of shareholders in a balanced manner plays a major role in improving a firm’s governance and controlling, and also leads to the wealth distribution, thus improving the firm sustainability. This can have an effect on a FV.

Implications

The data derived from this study highlight the associations among OS, CHs and FV, which can be either negative or positive. At the same time, it identifies the role of CHs as a mediator between OS and FV. The findings of this study can help investors and other interested parties to understand the determinants of FV, and how they can avoid the negative determinants to maximize the FV. Investors and other interested parties can adopt and forecast the deterministic and practical scenarios to identify the fit OS that affects FV; this could help determine the factors that encourage investors to invest in the firm that observes fair wealth distribution in order to ensure the firm’s sustainability. Additionally, investors and other interested parties need to comprehend the interaction of other factors that have an influence on FV so as to make efficient decisions.

The data and findings also show that policymakers and other interested parties could find a way through the OS to maximize FV; this could lead to more foreign investment in the market. On the other hand, the study findings provide a guideline for policymakers in order to write good instructions ensuring effective performance in firms, and, thus, improving FV, while protecting the investors and other interested parties from risk. Finally, this study recommends future research to study more determinants of FV, especially in different countries, such as MENA countries, where it may provide different findings.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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