Founding family ownership and the agency cost of debt

Abstract We investigate the impact of founding family ownership structure on the agency cost of debt. We find that founding family ownership is common in large, publicly traded firms and is related, both statistically and economically, to a lower cost of debt financing. Our results are consistent with the idea that founding family firms have incentive structures that result in fewer agency conflicts between equity and debt claimants. This suggests that bond holders view founding family ownership as an organizational structure that better protects their interests.

The Causal Effect of Family Control on Corporate Disclosures.

Empirical studies report conflicting evidence regarding the information environment of public firms controlled by founding families. We use brokerage houses closing their research division as an exogenous shock to public information environment of covered firms to test whether family control influences corporate disclosure policy. After an exogenous information shock, we find that family firms provide greater disclosures, more informative disclosures, and more rapidly produce disclosures than nonfamily firms. Our results indicate that family control increase the likelihood of corporate disclosures by over 180% relative to nonfamily firms. disclosure increase across founder-, descendant-, and professional- led family firms. Overall, our analysis provides compelling evidence that family control increases corporate disclosures and improves stock market liquidity

The efficacy of regulatory intervention: Evidence from the distribution of informed option trading

10.1016/j.jbankfin.2013.07.037Journal of Banking and Finance37114337-4352JBFI

The Causal Effect of Family Control on Corporate Disclosures.

Empirical studies report conflicting evidence regarding the information environment of public firms controlled by founding families. We use brokerage houses closing their research division as an exogenous shock to public information environment of covered firms to test whether family control influences corporate disclosure policy. After an exogenous information shock, we find that family firms provide greater disclosures, more informative disclosures, and more rapidly produce disclosures than nonfamily firms. Our results indicate that family control increase the likelihood of corporate disclosures by over 180% relative to nonfamily firms. disclosure increase across founder-, descendant-, and professional- led family firms. Overall, our analysis provides compelling evidence that family control increases corporate disclosures and improves stock market liquidity

Founders, heirs, and corporate opacity in the United States

We argue that information about firm activities can vary substantially in the presence of founder or heir ownership, thereby influencing the risks borne by minority investors. We explore two hypotheses with regard to these controlling shareholders and corporate transparency, focusing on their role as monitor in-place and their potential to exploit firm opacity to accrue private benefits of control. To test these notions, we create an opacity index that ranks the relative transparency of the two thousand largest industrial US firms and find founder and heir ownership in 22% and 25% of these firms, respectively. Our analysis indicates that, in large, publicly traded companies, both founder and heir firms are significantly more opaque than diffuse shareholder firms. We also find that founder and heir-controlled firms exhibit a negative relation to performance in all but the most transparent firms. Surprisingly, additional tests reveal that concerns about divergences in ownership versus control (management type, dual class shares, and board influence) appear to be substantially less important than corporate opacity in explaining the performance impacts of founder and heir control. Finally, we decompose corporate opacity into disclosure and market scrutiny components, finding that the disclosure quality component appears to be of greater importance to investors. However, irrespective of whether these controlling shareholders create or stay in the firm because of corporate opacity, our analysis suggests that founders and heirs in large, publicly traded firms exploit opacity to extract private benefits at the expense of minority investors.Family firms Dual class shares Performance Market scrutiny Disclosure quality

The economics of director heterogeneity

We investigate the potential costs and benefits of firms constituting a heterogeneous pool of directors relative to more homogeneous boards. We measure director heterogeneity along six separate dimensions and divide board heterogeneity into occupational and social components. Our empirical analysis indicates that corporate complexity and managerial control exhibit significant influence on board heterogeneity. Using the heterogeneity of the county population of the firm's headquarters as an instrument, we also find that investors place valuation premiums on heterogeneous boards in complex firms but discount heterogeneity in less complex firms. Overall, our analysis indicates greater heterogeneity may not necessarily improve board efficacy