Performance, investment, and financing patterns of family firms after going public

Research Question/Issue: This study investigates the performance, investment, and\r\nfinancing patterns of family firms after they go public.\r\nResearch Findings/Insights: Despite the common claim that most initial public offerings\r\n(IPOs) are motivated by growth considerations, we find that the operating performance\r\nof family firms declines after going public relative to non-family issuers and\r\ncomparable private firms. This effect is long-lasting and not due to earnings management\r\nbefore the IPO. We also document that family firms do not differ from other\r\nfirms in terms of investment activities, but they experience a smaller decrease in\r\nleverage.\r\nTheoretical/Academic Implications: The contributions of this study are threefold.\r\nFirst, it delves into the incentives of controlling families when facing the IPO decision.\r\nSecond, while financial investors' ability to effectively time IPO decisions has\r\nbeen previously documented, this study shows that families, despite peculiar incentives,\r\ntake their firms public before a performance decline. Third, it examines the\r\nbehavior of family firms concerning the usage of IPO proceeds.\r\nPractitioner/Policy Implications: Families accept diluting their stake in an IPO\r\nwhen they know that firm performance is about to deteriorate. This increases the\r\nrelative attractiveness of the non-pecuniary benefits of control, most of which\r\nremain with the family, over financial wealth, whose future value is expected\r\nto decrease.