How do newly public firms with founding family ownership and control evolve in the long run? In their recent publication in the Journal of Business Finance & Accounting (A* on ABDC List), Finance Assistant Professor Huimin Li and her coauthor Harley Ryan Jr. (Georgia State) take an evolution perspective and trace firms for up to 25 years post initial public offering. They examine family ownership dilution, firm performance, and firm policies to provide a comprehensive study on the influence of founding family ownership after firms enter the public capital markets.
The authors find that family owners' reluctance to dilute their ownership shows a negative influence on firm value. To protect their control, family shareholders prefer debt financing than equity financing. The constrained financing choices prevent the firms from fully exploiting their investment opportunities, and in particular, the investment in research and development. This type of investment is usually considered riskier than capital expenditures in the long run, but often would help increase firm value.
