Insider Trading and Initial Public Offerings in Family Firms

This dissertation centers around insider trading and Initial Public Offerings (IPO) in family firms and explores how family ownership and family managerial involvement affect financial behavior and outcomes. The first article investigates how family ties in family firms affect insider trading behavior and the propensity towards information exploitation and information leakages. Corporate insiders often possess material, non-public information which they may exploit for their own purposes or leak to outside market participants. Using insider trading data of U.S. publicly listed family firms on trading profitability and short-sale volumes, the study disentangles the trading behavior of insiders who are personally related to the founding family from those without such a family relationship and examines the role of managerial involvement in their trading behavior. The findings contribute to research on insider trading heterogeneity and informed trading. The second article explores the investment behavior in growth opportunities in newly public family firms, compared to that of newly public nonfamily firms. When family firms conduct an IPO, they are often confronted with a trade-off of economic and noneconomic considerations. Using a real options perspective, the study suggests that family firms may accept an initial loss of noneconomic wealth at the point of going public but invests more of their proceeds into growth opportunities that offer future financial compensation, compared to non-family firms. The study further explores uncertainty dimensions as boundary conditions where such investments are particularly risky but also offer a potentially higher future payoff for family firms. The hypotheses are tested based on hand-collected data of U.S. IPO firms. The study contributes to research on family firm IPOs and highlights the importance of firm heterogeneity in the context of real options theory. The third article examines how going public affects financial stewardship behavior in family firms, compared to nonfamily firms. While stewardship theory suggests that family firms tend to make farsighted financial management decisions, a firms organizational context must concurrently be designed to enable and support such stewardship behavior. The article is based on a hand-collected sample of newly public U.S. firms and investigates how a change from private to public ownership, and thereby a change in the organizational context, impacts financial stewardship behavior in family firms, compared to nonfamily firms. In this context, the study also explores the role of nonfamily blockholders and two dimensions family influence. The article contributes to literature on stewardship theory and financial behavior in family firms.