Firm Value and Pyramidal Structures: New Evidence for Family Firms

47 Pages Posted: 13 Nov 2019 Last revised: 15 Nov 2019

See all articles by Mauricio Jara-Bertin

Mauricio Jara-Bertin

University of Chile - Business School

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Juan Pablo Torres Cepeda

Department of Business, School of Economics and Business, Universidad de Chile

Date Written: November 4, 2019

Abstract

In this paper, we analyze what effects separating ownership and control have on the performance of a sample of 99 Chilean family-controlled firms for the period 2001–2014. Our results show an inverse U-shaped relationship between voting rights and cash flow rights divergence and firm value. This result suggests that excessive divergence of rights makes the firm’s value decline and can aggravate potential conflicts of interest inside family firms. We also find a positive moderating effect of business group affiliation, which highlights the ability of business groups to attenuate the negative impact of separating rights, particularly at high levels. We also find that family CEOs exert a beneficial effect on family firm performance at lower levels of divergence of rights, but that said effect disappears as the divergence of rights increases, suggesting that, when in control, family shareholders can ensure entrenchment by installing family member CEOs.

Keywords: firm performance; family corporate control; pyramidal ownership; business groups

JEL Classification: G32

Suggested Citation

Jara-Bertin, Mauricio Alejandro and Lopez-Iturriaga, Felix Javier and Torres Cepeda, Juan Pablo, Firm Value and Pyramidal Structures: New Evidence for Family Firms (November 4, 2019). Journal of Business Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3480663 or http://dx.doi.org/10.2139/ssrn.3480663

Mauricio Alejandro Jara-Bertin (Contact Author)

University of Chile - Business School ( email )

Diagonal Paraguay 257
Santiago, Chile
Chile

Felix Javier Lopez-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Juan Pablo Torres Cepeda

Department of Business, School of Economics and Business, Universidad de Chile ( email )

Universidad de Chile
Diagonal Paraguay 257
Santiago, RM
Chile

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