Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Asset Market Equilibrium and Family Firm Cost of Capital
T2 - Implications for Corporate Finance
AU - Osakwe, Carlton
AU - Chua, Jess
AU - Chrisman, James J.
PY - 2022/12/7
Y1 - 2022/12/7
N2 - Family firms are different from nonfamily firms because the combination of family ownership, family control, and family managementleads to certain distinctive structural effects. These effects, alongwith the demonstrated importance of family firms in the globaleconomy, have the potential to affect asset market equilibriumand the cost of capital for both family and nonfamily firms. Wepropose an equilibrium model that incorporates the key featurescharacterizing family firms – receipt of nonpecuniary socioemotional benefits, holding a nontraded and non-diversified controlblock, and information asymmetry between the family and otherinvestors. The resulting information and competitive equilibriummodel shows that the costs of capital for family and nonfamilyfirms operating inside the same economy are different. These differences yield important implications for corporate finance in termsof investment and financing at the macro level.
AB - Family firms are different from nonfamily firms because the combination of family ownership, family control, and family managementleads to certain distinctive structural effects. These effects, alongwith the demonstrated importance of family firms in the globaleconomy, have the potential to affect asset market equilibriumand the cost of capital for both family and nonfamily firms. Wepropose an equilibrium model that incorporates the key featurescharacterizing family firms – receipt of nonpecuniary socioemotional benefits, holding a nontraded and non-diversified controlblock, and information asymmetry between the family and otherinvestors. The resulting information and competitive equilibriummodel shows that the costs of capital for family and nonfamilyfirms operating inside the same economy are different. These differences yield important implications for corporate finance in termsof investment and financing at the macro level.
KW - Cost of capital
KW - corporate finance
KW - family business
KW - nonpecuniary socioemotional benefits
U2 - 10.1561/114.00000030
DO - 10.1561/114.00000030
M3 - Journal article
VL - 2
SP - 791
EP - 817
JO - Review of Corporate Finance Studies
JF - Review of Corporate Finance Studies
IS - 4
ER -