The impact of ownership transferability on family firm governance and performance: The case of family trusts

Joseph P.H. Fan and Winnie S.C. Leung

Journal of Corporate Finance, 2020, vol. 61, issue C

Abstract: Ownership structure plays a critical role in the incentives and behaviors of business organizations. The literature has focused on the effects of firm ownership dispersion across managers and investors. We extend the literature by examining the roles of ownership structure within a controlling family. Specifically, we focus on the family trust structure, which is a popular vehicle for holding family ownership around the world. The trust structure typically locks controlling ownership within a family for a very long period. Although it ensures family control, the share transfer restriction may induce family shirking problems, make family conflicts difficult to resolve, and distort firm decisions. Based on a sample of publicly traded family firms in Hong Kong, we report that trust-controlled firms that are more susceptible to these problems tend to pay higher dividends, invest less in the long term, and experience worse performance. The costs of using a trust structure are more significant when the family stakes have been locked inside the trust for a longer period and when a larger amount of family ownership is held by the trust.

Keywords: Family trust; Ownership structure; Ownership transferability; Family firm; Firm governance (search for similar items in EconPapers)
JEL-codes: G32 J12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:61:y:2020:i:c:s0929119918306321

DOI: 10.1016/j.jcorpfin.2018.09.004

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