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Family control, expropriation, and investor protection: A panel data analysis of Western European corporations

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  • Pindado, Julio
  • Requejo, Ignacio
  • de la Torre, Chabela

Abstract

We investigate whether the value impact of family control in Western European firms depends on country-level investor protection. To this aim, we account for ownership–value nonlinearities. Supporting that the risk of expropriation increases with high ownership concentration, we find an inverted U-shape relation between family control and firm value. Family firms incur a value discount when family equity holdings exceed approximately 50%. The nonlinear effect of family control is attributable to family firms from a strongly protective environment. When investor protection is weak, family control has a positive impact on firm value regardless of the ownership concentration level.

Suggested Citation

  • Pindado, Julio & Requejo, Ignacio & de la Torre, Chabela, 2014. "Family control, expropriation, and investor protection: A panel data analysis of Western European corporations," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 58-74.
    • Handle: RePEc:eee:empfin:v:27:y:2014:i:c:p:58-74
    DOI: 10.1016/j.jempfin.2013.10.006
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    More about this item

    Keywords

    Family firm; Expropriation; Value impact; Nonlinearity; Investor protection;
    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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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