Founders, Heirs, and Corporate Opacity in the U.S.

Posted: 9 Jun 2008

See all articles by Ronald C. Anderson

Ronald C. Anderson

Temple University - Department of Finance

Augustine Duru

American University - Kogod School of Business

David M. Reeb

National University of Singapore


We argue that information about firm activities can vary substantially in the presence of founder or heir ownership, thereby influencing the risks borne by minority investors. We explore two hypotheses with regard to these controlling shareholders and corporate transparency, focusing on their role as monitor in-place and their potential to exploit firm opacity to accrue private benefits of control. To test these notions, we create an opacity index that ranks the relative transparency of the 2,000 largest industrial U.S. firms and find founder and heir ownership in 22% and 25% of these firms, respectively. Our analysis indicates that in large, publicly-traded companies, both founder and heir firms are significantly more opaque than diffuse shareholder firms. We also find that founder- and heir-controlled firms exhibit a negative relation to performance in all but the most transparent firms. Surprisingly, additional tests reveal that concerns about divergences in ownership versus control, management type, dual class shares, and board influence appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control. Finally, we decompose corporate opacity into disclosure and market scrutiny components, finding that the disclosure quality component appears to be of greater importance to investors. However, irrespective of whether these controlling shareholders create and/or stay in the firm because of corporate opacity, our analysis suggests that founders and heirs in large, publicly-traded firms exploit opacity to extract private benefits at the expense of minority investors.

JEL Classification: D82, G12, G34, M41, M43, M45, G32

Suggested Citation

Anderson, Ronald Craig and Duru, Augustine and Reeb, David M., Founders, Heirs, and Corporate Opacity in the U.S.. Journal of Financial Economics (JFE), Forthcoming, Available at SSRN:

Ronald Craig Anderson

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Augustine Duru

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1937 (Phone)
202-885-1992 (Fax)

David M. Reeb (Contact Author)

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245


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