Organizational form and agency problems

Abstract

This dissertation comprises three essays about agency problems in family firms. The second chapter examines how the protection of shareholder rights affects the pricing of family firms. We measure investor reaction to 132 deaths in 109 publicly traded family firms operating in 24 countries. Investor reaction to a death in the family, measured using abnormal stock returns, averages 0.58 percent and is significant. Investors perceive the death to be a value-enhancing event with the potential to dilute family control. The positive investor reaction is amplified in countries and periods with weaker protection of shareholder rights. The third chapter investigates how the gender perceptions of investors may shape their valuation of family firms. Children from multiple marriages could increase potential conflicts. Investor reaction decrease with the interaction of the number of children and the number of marriages the deceased had. Furthermore investors perceive male, but not female, progeny as potential instigators of unrest. The fourth chapter investigates whether family or nonfamily firms are more likely targets of shareholder activism. Shareholder activism aims to limit agency conflicts between insiders and outsider shareholders. We examine the shareholder activism targeting the 2,000 largest nonutility and nonfinancial firms traded in the United States. We measure shareholder activism with Schedule 13D forms filed to change or influence the control. Results indicate that family firms are more likely targets of shareholder activism than non-family firms. Activist shareholders seem to focus on principal-principal agency problems in family firms and principal-agent agency problems in non-family firms.