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Family ownership, country governance, and foreign portfolio investment

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journal contribution
posted on 01.04.2018 by A. Bodnaruk, M Massa, V. Yadav
We study how different dimensions of family ownership combine to make family firms around the world appealing to foreign investors. Family firms provide the benefits of political connections, but at the same time they are more prone to expropriate minority shareholders themselves. This cost-benefit trade-off depends on the quality of country governance: families are attractive investment opportunities in countries in which the value of political connections is high, but the majority shareholders have limited ability to expropriate, i.e., “useful” countries. Foreign investors – more sensitive both to the risk of expropriation by the government and to the risk of expropriation by majority shareholders – are particularly responsive to this trade-off. While on average foreign institutional investors are less likely to invest in family firms and such firms have lower value, these effects disappear when family ownership in a country is useful.


Publisher Statement

NOTICE: This is the author’s version of a work that was accepted for publication in Journal of Empirical Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Empirical Finance, Volume 41, March 2017, Pages 96–115 DOI: 10.1016/j.jempfin.2017.01.002.





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