Private Benefits of Control in Founding-Family Owned Firms: An Analysis of the Dynamics of Disproportionate Ownership and Control in Family Firm Ipos
University of Applied Sciences Stralsund
University of Lugano; Swiss Finance Institute
July 1, 2015
Our study examines private benefits of control in founding-family owned firms, by analyzing a unique sample of 105 IPOs of family firms on German stock exchanges from 1970 to 2011. First, we show that substantial private benefits of control exist in these firms and we empirically determine the nature of these private benefits. Second, we confirm that the separation of cash flow rights and voting rights via dual-class shares is used to create controlling shareholder structures in order to preserve private benefits of the family. In doing so, we analyze the effect of different types of private benefits on dual-class adoption. Third, we show that the market cares about private benefits of control and find a significant long-run underperformance by dual-class IPO shares.
Number of Pages in PDF File: 44
Keywords: Private benefits; Family firms; Initial public offerings; Dual-class shares; One share-one vote; Control transfers; Ownership structures; Investor protection
JEL Classification: G14, G32, G15
Date posted: July 18, 2003 ; Last revised: October 8, 2015
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