We argue that the cost to a family of holding a large block of shares in a company, or under-diversifying, is reflected in the diversification benefits that the family forfeits. These costs can be substantial. For example, given a constant relative risk aversion parameter of 2, the median cost to our sample of families controlling large Swedish firms is 13% of the market value of firm’s shares. We find that this cost is reduced by pyramid structures but not by the use of dual class shares.
|Journal||Applied Financial Economics|
|Early online date||22 Nov 2008|
|Publication status||Published - 2008|