Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms

68 Pages Posted: 12 Mar 2019 Last revised: 13 Mar 2019

See all articles by Evgeny Lyandres

Evgeny Lyandres

Boston University

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Roberto Mura

University of Manchester - Manchester Business School

Date Written: April 4, 2018

Abstract

Portfolio diversification of firms' controlling owners influences their firms' capital investment. Empirically, the effect of owners' portfolio diversification on their firms' investment levels is positive for publicly-traded firms and tends to be negative for privately-held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners' portfolio underdiversification and firms' financial constraints can impact firms' resource allocation.

Keywords: diversification, strategies, private firms

JEL Classification: G11, G15, G31, G32

Suggested Citation

Lyandres, Evgeny and Marchica, Maria‐Teresa and Michaely, Roni and Mura, Roberto, Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms (April 4, 2018). Johnson School Research Paper Series No. 18-2013; Swiss Finance Institute Research Paper No. 19-12. Available at SSRN: https://ssrn.com/abstract=2234195 or http://dx.doi.org/10.2139/ssrn.2234195

Evgeny Lyandres (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-3582279 (Phone)

Maria‐Teresa Marchica

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Roberto Mura

University of Manchester - Manchester Business School ( email )

Crawford House
Oxford Road
Manchester, Lancashire M13 9PL
United Kingdom
+44 (0) 161 275 4023 (Fax)

HOME PAGE: http://www.robertomura.com

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