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Family Control and Stock Market Reactions to Innovation Announcements

Authors

  • Shao-Chi Chang,

    1. Institute of International Business, College of Management, National Cheng Kung University, No. 1, University Road, Tainan City, Taiwan
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  • Wann-Yih Wu,

    1. Department of Business Administration, College of Management, National Cheng Kung University, Taiwan, and
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  • Ying-Jiuan Wong

    1. Department of Business Administration, College of Management, National Cheng Kung University, Taiwan, and
    2. Department of International Business, College of Management, Chang Jung Christan University, Tainan, Taiwan
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  • The authors wish to thank Martin Conyon (the Associate Editor), Sebastian Stegmann (the Managing Editor) and three anonymous referees for helpful comments and suggestions. Seminar participants at the 2007 Academy of Management Conference provided many valuable comments. Shao-Chi Chang acknowledges funding from the National Science Council in Taiwan (NSC 96-2416-H-006-025-MY3).

Corresponding author email: schang@mail.ncku.edu.tw

Abstract

Although family firms are common around the world, studies on family-controlled business are limited. Prior studies mainly focused on the influences of family ownership on overall firm performance, and the results were mixed. In this study we attempted to explore the impacts of family ownership on innovation by examining the association of family control and stock market reactions to innovation announcements. We found that firms with greater family control experienced significantly more negative stock market reactions to innovation announcements. The results further indicated that divergence of cash flow and voting rights was strongly and negatively correlated with announcement-period abnormal returns. In addition, the findings suggested a significantly positive moderating effect of institutional ownership. The conclusions were robust under various measures of family control, and remained valid after controlling other influential factors for stock market reactions to innovation announcements.

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