Market reaction to deaths of founders and non-founding executive family members in family firms

Abstract

This thesis empirically investigates how markets react to uncertainty regarding the separation of control and ownership in family firms. I examine the market reaction to deaths of founders or non-founding executive family members. Deaths of executive family members (including founders) create uncertainty regarding the future distribution of control rights and the sale of block-holds. My sample spans 88 death notices of founder or non-founding family members from 69 firms across 16 countries. Average abnormal return on the day of the death notice of executive family members is statistically significant and positive at 0.75 percent. The positive and significant market reaction to executive family member deaths indicates that the expected dilution in family control is perceived as positive news. Furthermore, cross-country market reaction to deaths of executive family members is more pronounced (but the difference proves insignificant) as the protection of shareholder rights decrease. Markets reaction to news about future dilution of family control in firms headquartered in countries, where minority shareholder rights are less protected, is more positive.