Do U.S. Family Firms Exhibit Lower Stock Price Crash Risk

Using a U.S sample of 2,657 U.S. listed firms (13,951 firm-years) spanning the period from 2004 to 2012, we show that family firms exhibit lower crash risk (all three measures) than similar nonfamily firms. Our results hold after we control for endogeneity in a comparison of family firms with propensity-score-matched nonfamily firms. We interpret this result as showing that the long term perspective in the family firms reduces the proclivity of managers to hide bad news which in turn reduces crash risk. We support our interpretation by showing that our results are driven by cases where family firms demonstrate the long term perspective by not engaging in real earnings management and in restraining the power of the CEO.