Hannes Wagner, Università Bocconi
Abstract: We study whether and how family control affects valuation and corporate decisions during the 2008-2009 financial crisis using a sample of 8,600 firms from 35 countries. During a financial crisis, controlling families may experience liquidity shocks and increasing risk aversion. Thus, they may have new incentives to use their power to cut investment or divert resources at the expense of minority shareholders. Our results support this view. Relative to other firms, family-controlled firms underperform and reduce their capital expenditures during the global financial crisis. We also find that financial constraints effectively limit conflicts of interest in family-controlled firms. Family firms with financial slack underperform most, while constrained family firms do not underperform. In contrast, non-family blockholder control is on net beneficial during the crisis, particularly for constrained firms.