Abstract

http://ssrn.com/abstract=423506
 
 

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Private Benefits of Control in Founding-Family Owned Firms: An Analysis of the Dynamics of Disproportionate Ownership and Control in Family Firm Ipos


Olaf Ehrhardt


University of Applied Sciences Stralsund

Eric Nowak


University of Lugano; Swiss Finance Institute

July 1, 2015


Abstract:     
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


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Date posted: July 18, 2003 ; Last revised: October 8, 2015

Suggested Citation

Ehrhardt, Olaf and Nowak, Eric, Private Benefits of Control in Founding-Family Owned Firms: An Analysis of the Dynamics of Disproportionate Ownership and Control in Family Firm Ipos (July 1, 2015). Available at SSRN: http://ssrn.com/abstract=423506 or http://dx.doi.org/10.2139/ssrn.423506

Contact Information

Olaf Ehrhardt
University of Applied Sciences Stralsund ( email )
Zur Schwedenschanze 15
D-18435 Stralsund
United States
Eric Nowak (Contact Author)
University of Lugano ( email )
Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

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