Factors Associated with Strategic Corporate Decisions in Family Firms: Evidence from Sweden

Abstract

By using detailed ownership data from Sweden, we investigate the factors associated with corporate investment decisions in family firms compared to nonfamily firms. We find that the family owner's portfolio diversification level is to some extent, and the use of dual-class share mechanism by the family owner is strongly, associated with reduced corporate investment. We further demonstrate where entrenched family owners, holding dual-class shares, canalize their firm free cash flows to: they prefer to distribute it as dividends with catering motivations. They opt to pay higher dividends over increasing corporate investment, which indicates some evidence of private benefits of control.

Dividend decisions in family businesses: A systematic review and research agenda

“…Finally, catering theory, addressed in two articles, essentially describes that the interests and demands of shareholders mainly influence the decision to pay dividends by relaxing the assumptions of investor rationality and market efficiency (M. Baker & Wurgler, 2004). In other words, managers will align their dividend policy with investors’ preferences and these preferences are likely to be different when these investors are family members (Sekerci, 2020; Trabelsi et al., 2019). Table 2 summarizes the assumptions of the top six theoretical frameworks that have been applied in family firm dividends research.…”

BestAmong the Worst or Worst Among the Best? Socioemotional Wealth and Risk-Performance Returns for Family and Non-family Firms Under Financial Distress

“…For instance, cultural or context related reasons may be investigated. Studies show that overall Swedish family companies are risk averse, yet innovative (Christiansen, 2021; Sekerci, 2020). Fifth, although we perform a fine-grained exact matching on whether the founder is involved in the firm and we also run a further robustness test by excluding founder firms, future studies may discriminate between founder firms, family firms and nonfamily firms to explore the role of the founder on risk-taking strategies and returns (Block, 2012; Miller et al, 2007).…”

Investors’ Reactions to CSR News in Family Versus Nonfamily Firms: A Study on Signal (In)credibility

“…Moreover, outside investors might even speculate that negative CSR news from family firms is a signal of family firm owners expropriating other investors by maximizing their wealth (e.g., through increased dividend payments) rather than investing in CSR (Sekerci, 2020). For nonfamily firms, given their clear and exclusive focus on economic goals, investors might anticipate short-term-oriented decisions resulting in negative CSR news and thus react less negatively than they would to similar signals from family firms.…”