There are competing theoretical explanations and conflicting empirical evidence for the IPO underpricing phenomenon in family firms. The behavioral agency model predicts that loss-averse family firms discount their shares more than non-family firms in order to minimize losses of socioemotional wealth (SEW). By contrast, the endowment effect in prospect theory suggests that family owners maximize their financial wealth (FW) by including SEW in their perceptions of firm value and demanding a higher IPO price to relinquish it. We reconcile these seemingly incompatible predictions by adding insights on the dynamic properties of the reference point in decision framing. Conceiving IPO pricing as a two-stage gamble, we theorize that initial SEW losses entailed by the listing decision increase the disposition of family owners to underprice IPO shares to possibly offset these losses, or to "break even". In doing so, we advance the behavioral agency model with the aversion to loss realization logic to explain how the decision frames and preferences of family owners change during the IPO process, depending on initial losses of current SEW and new expectations of future SEW. Our analysis of 1,807 IPOs in Europe supports our theoretical expectations, clarifying the trade-off between FW and SEW and explicating the dynamic properties of mixed gambles in family firms.

(2018). Financial wealth, socioemotional wealth and IPO underpricing in family firms: a two-stage gamble model [journal article - articolo]. In ACADEMY OF MANAGEMENT JOURNAL. Retrieved from http://hdl.handle.net/10446/116742

Financial wealth, socioemotional wealth and IPO underpricing in family firms: a two-stage gamble model

Kotlar, Josip;Signori, Andrea;De Massis, Alfredo;Vismara, Silvio
2018-01-01

Abstract

There are competing theoretical explanations and conflicting empirical evidence for the IPO underpricing phenomenon in family firms. The behavioral agency model predicts that loss-averse family firms discount their shares more than non-family firms in order to minimize losses of socioemotional wealth (SEW). By contrast, the endowment effect in prospect theory suggests that family owners maximize their financial wealth (FW) by including SEW in their perceptions of firm value and demanding a higher IPO price to relinquish it. We reconcile these seemingly incompatible predictions by adding insights on the dynamic properties of the reference point in decision framing. Conceiving IPO pricing as a two-stage gamble, we theorize that initial SEW losses entailed by the listing decision increase the disposition of family owners to underprice IPO shares to possibly offset these losses, or to "break even". In doing so, we advance the behavioral agency model with the aversion to loss realization logic to explain how the decision frames and preferences of family owners change during the IPO process, depending on initial losses of current SEW and new expectations of future SEW. Our analysis of 1,807 IPOs in Europe supports our theoretical expectations, clarifying the trade-off between FW and SEW and explicating the dynamic properties of mixed gambles in family firms.
articolo
2018
Kotlar, Josip; Signori, Andrea; DE MASSIS, Alfredo Vittorio; Vismara, Silvio
(2018). Financial wealth, socioemotional wealth and IPO underpricing in family firms: a two-stage gamble model [journal article - articolo]. In ACADEMY OF MANAGEMENT JOURNAL. Retrieved from http://hdl.handle.net/10446/116742
File allegato/i alla scheda:
File Dimensione del file Formato  
Kotlar Signori DeMassis Vismara AMJ17 FINANCIAL WEALTH, SOCIOEMOTIONAL WEALTH AND IPO UNDERPRICING.pdf

Open Access dal 02/07/2019

Versione: postprint - versione referata/accettata senza referaggio
Licenza: Licenza default Aisberg
Dimensione del file 723.35 kB
Formato Adobe PDF
723.35 kB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

Aisberg ©2008 Servizi bibliotecari, Università degli studi di Bergamo | Terms of use/Condizioni di utilizzo

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/116742
Citazioni
  • Scopus 176
  • ???jsp.display-item.citation.isi??? 161
social impact