The Effect of Family Ownership and Control on Disclosure Policies of Public Firms

Abstract

This paper examines the effect of family ownership on firm voluntary disclosure and the associated capital market consequences. I use a randomly assigned family trait, the gender of the firstborn child of the firm’s family owner, as an instrumental variable and find that family ownership of a firm decreases its voluntary disclosure and stock liquidity. Results suggest that incentives to retain family ownership and control of a firm affect corporate disclosure policies, and exemplify why some firms are opaque despite the potential capital market benefits of improved disclosure. Robustness tests show that the negative effect of family ownership on firm voluntary disclosure holds across different firm generations, ages of the firstborn child, local economic development and cultural settings.

Keywords: Family ownership, voluntary disclosure, stock liquidity, growth opportunities

JEL Classification: G14, G32, M41