eThesis - School of Business electronic theses

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The main objective of this master’s thesis is to discover how the share liquidity of family firms affects firm value. First I investigate the impact concentrated ownership has on firm performance. After that I heighten my investigation and take share liquidity into account.

The first half of this master’s thesis discusses the comparisons between the performance of family and non-family firms according to existing literature. I present the results of previous studies about family firm’s performance and how active or passive control can affect it. The investigation of stock liquidity is also based on current literature. I discuss liquidity measures and liquidity adjusted capital asset pricing model.

The second half of this master’s thesis consists of the empirical part. I use a regression analysis in which firm value is measured with Tobin’s q or the P/E-ratio. Share liquidity is measured with the Amihud liquidity measure. Finally I investigate a Finnish family firm, Lemminkäinen, and find out how the results that I get in my empirical analysis can be applied to their case.

My dataset is a panel of 108 firms listed on the Helsinki Stock Exchange from 1997 to 2008. I restrict the panel to non-financial firms only. I found that Finnish family firms are worse market performers than non-family firms. The coefficient estimate for family firms is statistically significant at the one-percent level. I also found a strong negative relationship between a family firm’s share illiquidity and firm value. The coefficient estimate for a family firm’s share illiquidity is statistically significant at the one-percent level as well. However, I did not find a statistically significant effect of a non-family firm’s share illiquidity on firm value. As a conclusion, it is evident that family firms suffer the effect of share illiquidity on firm value.