Family First? Kinship Ties and Equity Prices

44 Pages Posted: 27 May 2016 Last revised: 31 Oct 2019

See all articles by Gianpaolo Parise

Gianpaolo Parise

EDHEC Business School and CEPR

Fabrizio Leone

University of Turin - Collegio Carlo Alberto; UBS AG

Carlo Sommavilla

Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2017

Abstract

In this paper, we construct a novel measure of nepotism and explore its implications for firm value. We document that 35% of U.S. public firms employ relatives in top jobs. Using our measure, we show that nepotism decreases firm value: high-nepotism stocks underperform low-nepotism stocks by 7.4% annually. One-fourth of this underperformance is explained by the price reaction to the announcement of predictably negative ``unexpected'' earnings. At the firm level, nepotism signals low human capital value, as high-ranking employees are less qualified and exert insufficient effort. We conclude that the market overlooks public signals on firm human capital.

Keywords: Nepotism, Mispricing, ESG, Governance, Market Inefficiency, Human Capital

JEL Classification: G14, J24, M14

Suggested Citation

Parise, Gianpaolo and Leone, Fabrizio and Sommavilla, Carlo, Family First? Kinship Ties and Equity Prices (March 1, 2017). Paris December 2016 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=2784287 or http://dx.doi.org/10.2139/ssrn.2784287

Gianpaolo Parise (Contact Author)

EDHEC Business School and CEPR ( email )

393 Promenade des Anglais
Nice, 06200
France

Fabrizio Leone

University of Turin - Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10122
Italy

UBS AG ( email )

Zurich, CH-8098
Switzerland

Carlo Sommavilla

Università della Svizzera italiana (USI), Lugano; Swiss Finance Institute ( email )

c/o Università della Svizzera Italiana
Via G. Buffi 13
CH-6904 Lugano
Switzerland

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