The Family Firm Puzzle

Posted: 20 Dec 2013

See all articles by Ronald Anderson

Ronald Anderson

Independent

Nan Li

Shanghai Jiao Tong University, Antai College of Economics and Management

David M. Reeb

National University of Singapore

Date Written: December 12, 2013

Abstract

Conventional wisdom suggests that family shareholders should exit their large, concentrated equity stakes in publicly-traded firms and seek benefits arising from diversification. To provide insights into families’ puzzling investment decision, we consider a model with risk - and ambiguity - aversion. The model sheds light on why families hold large equity stakes and when families will exit the firm. Our empirical analysis lends support to the model’s predictions and indicates that family ownership bears a strong relation to corporate ambiguity proxies. Overall, the results suggest that risk - and ambiguity - aversion represent distinct preferences that affect family owners’ investment and exit decisions.

Keywords: Family Equity Ownership, Ambiguity Aversion

JEL Classification: G11, D81, L22

Suggested Citation

Anderson, Ronald and Li, Nan and Reeb, David M., The Family Firm Puzzle (December 12, 2013). Available at SSRN: https://ssrn.com/abstract=2369150

Ronald Anderson

Independent ( email )

Nan Li (Contact Author)

Shanghai Jiao Tong University, Antai College of Economics and Management ( email )

1954 Hua Shan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200030
China

HOME PAGE: http://www.nanlifinance.org/

David M. Reeb

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://www.davidreeb.net

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