Family Shareholding and Corporate Value in Concentrated-Ownership-Structure Environments

Because company ownership structures of many countries are highly concentrated in controlling families, as opposed to diverse ownership structures, it is important to re-examine the relationship between ownership structure and corporate value. Highly concentrated ownership can allow controlling families to expropriate minority shareholders’ interests. In this study, we focus on companies listed in Taiwan, a typical family control environment, to measure the impact of family ownership on corporate value. In order to consider the differences in ownership structures and controlling power of the largest families simultaneously, we test the impact of excess control of family shareholding (ECFS) on corporate performance. Our results confirm a non-monotonic relationship between excess control of family shareholding and corporate value. In the 0% to 15% ECFS range (i.e., family controlled companies with low shareholding), the relationship between ECFS and corporate value is negative, which is consistent with the central agency problem results (La Porta, Lopez-de-Silanes, and Shleifer, 1999). Further, the inverse relationship between ECFS and R&D and advertising expenditures suggests that controlling families with low shareholding prefer not to develop intangible assets and future growth opportunities.