Does intergeneration succession influence stock prices of family businesses?

ABSTRACT

China’s A-shares family listed companies are facing a period of high intergenerational succession. This has attracted the attention and research of many scholars. The existing studies mainly focus on the motives, methods, and influencing factors of family business’ intergenerational succession, and there are few studies involving the reaction of the capital markets. This article takes 45 listed family businesses as samples and uses the synthetic control method to examine the impact and the degree of influence that intergenerational succession has on stock price movements. Thereafter, a difference-in-differences estimation is conducted to test for robustness. At the conclusion of our research, we find that intergenerational succession has a significant negative effect on the stock price of listed companies.

KEYWORDS:

• Family Business
• intergenerational succession
• synthetic control method
• capital market reaction

JEL CLASSIFICATION:

• G32
• G34
• M13

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ According to the definition in the ‘China Modern Family Business Survey Report’ published by Forbes in 2016, the family business is owned or controlled by the family, and at least two or more family members are actually involved in the management of the business.

² The establishment and development of Chinese private enterprises mainly began in the reform and opening up in the early 1980s. It is currently in the peak period from the founder generation to the second generation of the family companies. All the samples in this article are based on the second-generation succession (not the third generations or more).

³ Our estimation window is larger than that used by Smith and Amoakoadu (1999) because the Chinese stock market adopts price limit system that limits a daily 10% increase and decrease of each stock, thus it cannot fully reflect the impact of the event on the stock price if the estimation window is too short. Many event studies taking Chinese listed companies as samples choose a 20-day estimation window. In fact, the research conclusion does not change so much when we adjust the window to 15 and 25 days respectively.

Additional information

Funding

This work was supported by the Ministry of Education of the People’s Republic of China [15YJC790012];National Natural Science Foundation of China [71563011];Jiangxi Federation of Social Science [15YJ35];Taishan scholars project special funding [16BJRJ07].