Founding‐Family Ownership, Corporate Diversification, and Firm Leverage

Anecdotal accounts imply that founding families routinely engage in opportunistic activities that exploit minority shareholders. We gauge the severity of these moral hazard conflicts by examining whether founding families--as large, undiversified blockholders--seek to reduce firm-specific risk by influencing the firm's diversification and capital structure decisions. Surprisingly, we find that family firms actually experience less diversification than, and use similar levels of debt as, nonfamily firms. Consistent with these findings, we also find that direct measures of equity risk are not related to founding-family ownership, which suggests that family holdings are not limited to low-risk businesses or…