Idiosyncratic Risk, Private Benefits, and the Value of Family Firms
27 Pages Posted: 12 Mar 2016
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: Suggested Citation