Topic：Ambiguity, Information Advantage and the Family Firm Ownership Puzzle

Speaker：Dr LI Nan, Shanghai Jiaotong University

Time：Friday, 6.July,2018,14：30

Site：EMS B226

Abstract: Conventional wisdom suggests that family shareholders should exit their large, concentrated equity stakes in publicly traded firms and seek the benefits of diversification. We find that concerns for Knightian Uncertainty or ambiguity, especially about return volatility are critical to understanding the decision of family owners to hold a large portion of their wealth in a single firm. Furthermore, in contrast to models without ambiguity, our model predicts that less wealthy, less risk averse and younger families are more likely to exit the firm. As the information advantage possessed by family owners is more useful in industries with higher unceratinty to reduce the ambiguity about the family firm relative to other firms, the model implies that family owners concentrate more in their firms in industries with higher uncertainty, as measured by stock exposure to the economic uncertainty index of Jurado, Ludvigson, and Ng (2015), or proxied by higher entry barrier, less innovation, and higher kurtosis in analyst forecast. The empirical evidences based on the cross-sectional data of more than 500 U.S. family firms lend support to these novel predictions.