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Keywords:

  • Corporate control;
  • corporate governance;
  • family firms;
  • ownership structure

ABSTRACT

Manuscript type: Empirical

Research Question/Issue: This paper analyses the influence of large shareholders on firm value using a sample of firms from 11 European countries, specifically considering how the existence of a controlling coalition in family-owned firms and the contestability of control of the largest shareholder affect the value of the family-owned firms.

Research Findings/Insights: We find that increased contestability of the control of the largest shareholder increases the value of family-owned firms. Results also show that in firms in which the largest shareholder is a family, a second family shareholder reduces firm value. Conversely, an institutional investor as second shareholder increases firm value. Likewise, better legal protection of shareholders not members of the controlling coalition increases the value of family firms.

Theoretical/Academic Implications: We explore an under-examined aspect of agency conflict – contestability between large, dominant shareholders and minority shareholders. We highlight the role of the second and third largest shareholders, in terms of share and type of shareholder. We suggest the need for new avenues of research focused on the dynamics of power within the firm. Finally, we identify a situation in which conflict of interest becomes prominent.

Practitioner/Policy Implications: This study corroborates policymakers' concerns regarding the protection of rights of minority shareholders. We suggest the need for a stronger macro governance environment to facilitate minority shareholder participation in corporate decision making. Our study also lends support to balanced ownership structures with multiple large shareholders as a way to increase the firm's performance. Managers would also better serve shareholders' interests by not limiting their attention to the current controlling coalition.