Idiosyncratic Risk, Private Benefits, and the Value of Family Firms

27 Pages Posted: 12 Mar 2016

See all articles by Patrick Roger

Patrick Roger

Strasbourg University - LARGE Research Center - EM Strasbourg Business School

Alain Schatt

University of Lausanne, HEC-Lausanne

Date Written: March 10, 2016

Abstract

Many listed companies around the world are controlled by under-diversified family blockholders, who bear idiosyncratic risk in addition to systematic risk. In this paper, we assume that these shareholders require private benefits to compensate for the additional risk. We propose a simple equilibrium model of private benefits that highlights how the idiosyncratic risk borne by a family blockholder impacts the amount of required private benefits and, ultimately, the market value of the family firm.

Keywords: Family firm, blockholders, idiosyncratic risk, private benefits, market value

JEL Classification: G32, G34

Suggested Citation

Roger, Patrick and Schatt, Alain, Idiosyncratic Risk, Private Benefits, and the Value of Family Firms (March 10, 2016). Available at SSRN: https://ssrn.com/abstract=2746046 or http://dx.doi.org/10.2139/ssrn.2746046

Patrick Roger (Contact Author)

Strasbourg University - LARGE Research Center - EM Strasbourg Business School ( email )

PEGE
61 avenue de la Forêt Noire
Strasbourg, 67000
France

Alain Schatt

University of Lausanne, HEC-Lausanne ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

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