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Idiosyncratic risk, private benefits, and the value of family firms

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  • Roger, Patrick
  • Schatt, Alain

Abstract

Many listed companies around the world are controlled by under-diversified family blockholders, who bear idiosyncratic risk in addition to systematic risk. In this paper, we assume that these shareholders require private benefits to compensate for the additional risk. We propose a simple equilibrium model of private benefits that highlights how the idiosyncratic risk borne by a family blockholder impacts the amount of required private benefits and ultimately, the market value of the family firm.

Suggested Citation

  • Roger, Patrick & Schatt, Alain, 2016. "Idiosyncratic risk, private benefits, and the value of family firms," Finance Research Letters, Elsevier, vol. 17(C), pages 235-245.
    • Handle: RePEc:eee:finlet:v:17:y:2016:i:c:p:235-245
    DOI: 10.1016/j.frl.2016.03.015
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    More about this item

    Keywords

    Family firm; Blockholders; Idiosyncratic risk; Private benefits; Market value;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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