The Family Firm Puzzle
Posted: 20 Dec 2013
Date Written: December 12, 2013
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: Suggested Citation