Bequest motive, information transparency, and family firm value: A natural experiment

Research output: Contribution to journalArticlepeer-review

  • Authors:
  • Haijie Huang
  • Edward Lee
  • Changjiang Lyu
  • Yiyi Zhao


Motivated by Cao et al. (2015), we utilize China’s one-child policy reform as a unique and exogenous setting to examine the economic impact of a potential rise in bequest motives among family firms, which is driven by the prospect of family and clanship expansion after the reform. A bequest motive is the economic incentive to accumulate wealth presently for inheritance by heirs in the future. It causes short-term present economic decisions to be influenced by long-term future utility expectations. On the one hand, the reform may strengthen stewardship as a means to maximize firm value for present family wealth enhancement and future inter-generational succession. On the other hand, the reform may weaken innovation and competitiveness by inducing reluctance against takeovers or outsider succession. Consistent with a positive economic impact, we observe that family firms experience (i) favorable ex-ante market reactions to the news of the reform and (ii) ex-post decline in managerial expropriation through tunneling after the reform. These findings of ex-ante investor anticipation and ex-post real effect are both stronger among less transparent family firms where Type-II agency problems are likely to be more pronounced. Further analyses also provide supportive evidence of a post-reform rise in the long-term value, measured by Tobin’s Q, and a decline in stock-selling by controlling shareholders among family firms. Our combined findings imply that this reform could induce positive externality on family firm governance.

Bibliographical metadata

Original languageEnglish
JournalJournal of Corporate Finance
Publication statusPublished - 8 Oct 2020