Do tenure-based voting rights help mitigate the family firm control-growth dilemma?

Abstract

Investment growth in family firms is constrained by family preferences to retain corporate control, which limits outside equity issuance and increases the expropriation risk perceived by external minority shareholders. Tenure-based voting rights (TVRs) weaken the link between voting rights and cash flow rights, facilitating new equity capital issuance without loss of control. We find that publicly listed family firms in Italy adopt TVRs to facilitate the continuation of investment growth while retaining family control. We also find that in family firms with fragile control, investment increases after TVR adoption. Our results indicate that control-enhancing mechanisms such as TVRs can help resolve the control–growth dilemma in family firms.