The rate of substitution between economic and socioemotional wealth in family firm IPO underpricin
De Massis A
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Firm owners obtain the greatest economic return from IPO when they sell their equity at a high price. However, for family firms the economic benefits of IPO come at the expenses of family control and influence, that must be relinquished to nonfamily shareholders. This study examines the relationship between family firm status and IPO underpricing, suggesting that family goals must be considered explicitly in order to quantify socioemotional wealth and link it to differences in IPO underpricing between family and nonfamily firms. Using a sample of 1,743 IPOs occurring in seven European countries from 1995 to 2011, we replicate and extend prior work by showing that the relationship between family firm status and IPO underpricing is contingent on the degree of share retention, such that family firms trade their economic wealth (i.e. accepting higher underpricing) for socioemotional wealth only when their primary goal is sustaining firm growth rather than selling the firm.