Manuscript Type Empirical

Research Question/Issue This paper addresses the issue of whether controlling family shareholders are exposed to market control. The paper advances the theory that the expected performance of controlling shareholders, inferred from their track records, is constantly reflected in the market value of controlled firms.

Research Findings/Insights By using event-study methodology, we show that unexpected acts that are detrimental to minority shareholder interests performed by controlling family shareholders lead to short-term negative abnormal returns in firms that otherwise are completely unaffected by the detrimental acts, but are controlled by the same family-based business group.

Theoretical/Academic Implications The results shed new light on the significance of track records in corporate governance that have implications for research on informal corporate governance mechanisms, governance of family firms, and, possibly, comparative corporate governance. The results also have tentative implications for the understanding of the function of family-controlled business groups consisting of industrially unrelated firms by suggesting a function that has heretofore been neglected.

Practitioner/Policy Implications The results have implications for reform work in corporate governance by showing that practitioners and regulators must consider variability in non-legal corporate governance mechanisms when analyzing and attempting to change different national corporate governance systems to achieve desired effects.