Family governance practices and the minimum required rate of return in privately held family firms

This paper examines the relationship between the family governance evolutionary stages and the rate of return required by family businesses' shareholders (ke), building on an institutional and relational governance lens. We make the distinction between the informal stage, the family council stage and the family constitution stage. Findings from a sample of Spanish private family firms reveal that family firms in the family constitution stage have a lower ke than family firms in the family council stage and the informal stage. Surprisingly, family firms in the family council stage seem to have a higher ke than family firms that are in the informal stage, which points to ceremonial adoption effects and a mismatch between governance needs and practices in the family council stage. We also find that the effect of different family governance stages on ke is conditional on the number of family shareholders.