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Owners’ Portfolio Diversification and Firm Investment

Author

Listed:
  • Evgeny Lyandres
  • Maria-Teresa Marchica
  • Roni Michaely
  • Roberto Mura

Abstract

Portfolio diversification of firms’ controlling owners influences their firms’ capital investment. Empirically, the effect of owners’ portfolio diversification on their firms’ investment levels is positive for publicly traded firms and tends to be negative for privately held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and both the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners’ portfolio underdiversification and firms’ financial constraints can affect firms’ resource allocation.Received May 3, 2017; editorial decision March 8, 2019 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Evgeny Lyandres & Maria-Teresa Marchica & Roni Michaely & Roberto Mura, 2019. "Owners’ Portfolio Diversification and Firm Investment," The Review of Financial Studies, Society for Financial Studies, vol. 32(12), pages 4855-4904.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:12:p:4855-4904.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz050
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    Cited by:

    1. Mostafa Monzur Hasan & Grantley Taylor & Grant Richardson, 2022. "Brand Capital and Stock Price Crash Risk," Management Science, INFORMS, vol. 68(10), pages 7221-7247, October.

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