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Investment policy in family controlled firms

Author

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  • Anderson, Ronald C.
  • Duru, Augustine
  • Reeb, David M.

Abstract

We explore the relation between family ownership and corporate investment policy. Our analysis centers on two incentives, risk aversion and extended investment horizons, which potentially influence the level and type of investments that family firms undertake. We find that family firms devote less capital to long-term investments than firms with diffuse ownership structures. When dividing long-term investment into its two components of R&D and capital expenditures, we note that family firms, relative to nonfamily firms, prefer investing in physical assets relative to riskier R&D projects. Additional tests indicate that family firms receive fewer patent citations per dollar of R&D investment relative to nonfamily firms. Overall, all empirical results indicate that family preferences for lower firm risk, across all family sub-types, affects corporate R&D spending and capital expenditures.

Suggested Citation

  • Anderson, Ronald C. & Duru, Augustine & Reeb, David M., 2012. "Investment policy in family controlled firms," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1744-1758.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:6:p:1744-1758
    DOI: 10.1016/j.jbankfin.2012.01.018
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    More about this item

    Keywords

    Family business; Dual class shares; Founders; Heirs; Long-term investments; R&D spending; Capital expenditures;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • K2 - Law and Economics - - Regulation and Business Law
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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