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Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms

Author

Listed:
  • Evgeny Lyandres

    (Boston University)

  • Maria‐Teresa Marchica

    (University of Manchester - Alliance Manchester Business School)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

  • Roberto Mura

    (University of Manchester - Manchester Business School)

Abstract

Portfolio diversification of firms' controlling owners influences their firms' capital investment. Empirically, the effect of owners' portfolio diversification on their firms' investment levels is positive for publicly-traded firms and tends to be negative for privately-held ones. These findings are consistent with predictions of a model in which a risk-averse investor simultaneously chooses her portfolio structure, and the level and riskiness of capital investment of the firm she controls, and in which the firm can be potentially constrained in its capital investment choices. Overall, our results indicate that owners' portfolio underdiversification and firms' financial constraints can impact firms' resource allocation.

Suggested Citation

  • Evgeny Lyandres & Maria‐Teresa Marchica & Roni Michaely & Roberto Mura, 2019. "Owners' Portfolio Diversification and Firm Investment: Theory and Evidence from Private and Public Firms," Swiss Finance Institute Research Paper Series 19-12, Swiss Finance Institute, revised Mar 2019.
    • Handle: RePEc:chf:rpseri:rp1912
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    Cited by:

    1. Chi, Yung-Ling, 2022. "Owners’ portfolio diversification and internal capital allocation," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    2. Chi, Yung-Ling, 2023. "The agency costs of family ownership: Evidence from innovation performance," Journal of Banking & Finance, Elsevier, vol. 148(C).

    More about this item

    Keywords

    diversification; strategies; private firms;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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