The ownership heterogeneity in family businesses and stock price crash risk: moderating role of financially literate female director on the board

Abstract

Purpose: the presence of lone founders, multiple family members (ownership dispersion) and few family members (ownership concentration), in family businesses, affects the stock price crash risk in different manners. This study examines the distinct impact of lone founder ownership and family ownership concentration and dispersion on stock price crash risk, and moderating influence of financial literate female directors on this relationship.

Design/methodology/approach: the study used sample of 2954 firm-year observations comprising of non-financial firms listed on Pakistan Stock Exchange over the period 2012-2021. We employed the ordinary least squares (OLS) regression method to test the hypotheses and additionally used the generalized method of moments (GMM) estimation and two stage least squares (2SLS) analysis to check the robustness of the results.

Findings: we find that lone founder-owned firms are less prone to stock price crash risk due to lower information asymmetry and a strong organizational identity. In contrast, weaker emotional ties and a preference for short-term gains in family-owned firms where ownership is dispersed across multiple family members lead to a higher crash risk. Moreover, the presence of female directors with a financial background moderates these relationships and further reduces the likelihood of crash risk.

Originality/value: our results provide novel evidence of distinct social behavior of lone founders and family owners, and positive influence of financial literate female directors on stock price crash risk in an emerging economy.

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ORCID for Collins Ntim: orcid.org/0000-0002-1042-4056

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