Does one size fit all? A configurational approach to board effectiveness in limiting the excess cash

Abstract

Purpose: The study, by focusing on a context dominated by firms with a concentrated ownership, in which type-II agency problems (principal-principal conflicts) may occur, aims to depict which board configurations may be effective in protecting minority shareholders by mitigating the risk of controlling shareholders' expropriation via cash holdings. Design/methodology/approach: The research adopts a configurational approach and empirically conducts a fuzzy set/qualitative comparative analysis on a sample of 268 Italian listed companies. Findings: The analysis depicts three combinations of board configurations and ownership structures that can be considered effective, namely Active Independent Control, Female Active Control and Double Internal Control. Originality/value: The study revisits the topic of the risk of expropriation via cash holdings in a type-II agency problem framework and delineates the meaning of board effectiveness in a mature context ruled by family firms, like Italy. Furthermore, by drawing on a configurational approach, it overcomes the causality relationship between each board characteristic and cash holdings policies and reasons from a “bundle” perspective.