Are Institutional Investors Under-Investing in Family-Controlled Corporations?

Abstract

This thesis compared institutional ownership in family controlled and non-family controlled businesses and found that institutional ownership is less prevalent in the case of family controlled firms. In particular, concentrated ownership by the controlling family deterred institutional investment. When concentrated family ownership is controlled for, regression results showed that institutional investors avoided family controlled businesses, and that this avoidance behavior might be related to institutional investor size. Comparing institutional ownership of a firm’s largest five institutional holders and that of its smaller institutional investors showed that, while institutional investors have less ownership in family versus non-family controlled businesses, the evidence was stronger for the firm’s largest five institutional holders than for the small institutional investors. The analysis presented in this thesis concluded that some institutional investors may avoid family controlled businesses due to concerns over the investors’ ability to control firm management.