Research Question/Issue: This study investigates the performance, investment, and financing patterns of family firms after they go public. Research Findings/Insights: Despite the common claim that most initial public offerings (IPOs) are motivated by growth considerations, we find that the operating performance of family firms declines after going public relative to non-family issuers and comparable private firms. This effect is long-lasting and not due to earnings management before the IPO. We also document that family firms do not differ from other firms in terms of investment activities, but they experience a smaller decrease in leverage. Theoretical/Academic Implications: The contributions of this study are threefold. First, it delves into the incentives of controlling families when facing the IPO decision. Second, while financial investors' ability to effectively time IPO decisions has been previously documented, this study shows that families, despite peculiar incentives, take their firms public before a performance decline. Third, it examines the behavior of family firms concerning the usage of IPO proceeds. Practitioner/Policy Implications: Families accept diluting their stake in an IPO when they know that firm performance is about to deteriorate. This increases the relative attractiveness of the non-pecuniary benefits of control, most of which remain with the family, over financial wealth, whose future value is expected to decrease.
- corporate governance
- family firm