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The impact of family ownership and dual class shares on takeover risk

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  • M. Holmen
  • E. Nivorozhkin

Abstract

In this paper the relation between the use of dual class shares and the risk of takeovers is explored. The results stress the need to control for the identity of the controlling owner in studies of corporate control and firm performance. For family controlled firms, it is found that both the hazard rate of takeover and firm market value decline with the wedge between the families' voting rights and cash flow rights. It is concluded that due to non-transferable private benefits of control in family firms, dual class shares reduce the likelihood that the family will accept the terms of value enhancing takeovers and this translates into lower firm value.

Suggested Citation

  • M. Holmen & E. Nivorozhkin, 2007. "The impact of family ownership and dual class shares on takeover risk," Applied Financial Economics, Taylor & Francis Journals, vol. 17(10), pages 785-804.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:10:p:785-804
    DOI: 10.1080/09603100500461694
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    References listed on IDEAS

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    1. Kristian Rydqvist, 1993. "The Division of Takeover Gains in Sweden," CEPR Financial Markets Paper 0031, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 33 Great Sutton Street, London EC1V 0DX..
    2. Marco Becht & Colin Mayer, 2002. "Corporate control in Europe," Revue d'économie politique, Dalloz, vol. 112(4), pages 471-498.
    3. Barca, Fabrizio & Becht, Marco (ed.), 2001. "The Control of Corporate Europe," OUP Catalogue, Oxford University Press, number 9780199247424.
    4. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
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    Cited by:

    1. Ly, Kim Cuong & Liu, Hong & Opong, Kwaku, 2017. "Who acquires whom among stand-alone commercial banks and bank holding company affiliates?," International Review of Financial Analysis, Elsevier, vol. 54(C), pages 144-158.
    2. Markus Schmid, 2009. "Ownership structure and the separation of voting and cash flow rights-evidence from Switzerland," Applied Financial Economics, Taylor & Francis Journals, vol. 19(18), pages 1453-1476.
    3. Isabel Feito-Ruiz & Clara Cardone-Riportella & Susana Menéndez-Requejo, 2016. "Reverse takeover: the moderating role of family ownership," Applied Economics, Taylor & Francis Journals, vol. 48(42), pages 4051-4065, September.
    4. Hyun A. Hong & Jeong‐Bon Kim & Michael Welker, 2017. "Divergence of Cash Flow and Voting Rights, Opacity, and Stock Price Crash Risk: International Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 55(5), pages 1167-1212, December.
    5. Caprio, Lorenzo & Croci, Ettore & Del Giudice, Alfonso, 2011. "Ownership structure, family control, and acquisition decisions," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1636-1657.
    6. Ting Li & Nataliya Zaiats, 2018. "Corporate governance and firm value at dual class firms," Review of Financial Economics, John Wiley & Sons, vol. 36(1), pages 47-71, January.

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