Review of Corporate Finance > Vol 2 > Issue 4

Asset Market Equilibrium and Family Firm Cost of Capital: Implications for Corporate Finance

Carlton Osakwe, Bissett School of Business, Mount Royal University, Canada, , Jess Chua, Haskayne School of Business, University of Calgary, Canada, , James J. Chrisman, College of Business, Mississippi State University, USA,
Suggested Citation
Carlton Osakwe, Jess Chua and James J. Chrisman (2022), "Asset Market Equilibrium and Family Firm Cost of Capital: Implications for Corporate Finance", Review of Corporate Finance: Vol. 2: No. 4, pp 791-817.

Publication Date: 07 Dec 2022
© 2022 C. Osakwe, J. Chua and J. J. Chrisman
Corporate finance,  Asset pricing,  Family-owned firms
JEL Codes: D53, G12, G3, L21
Cost of capitalcorporate financefamily businessnonpecuniary socioemotional benefits


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In this article:
The Distinctiveness of Family Firms 
Asset Market Equilibrium with Family Ownership – Model Setup 
Comparative Statics 
Implications for Corporate Finance 


Family firms are different from nonfamily firms because the combination of family ownership, family control, and family management leads to certain distinctive structural effects. These effects, along with the demonstrated importance of family firms in the global economy, have the potential to affect asset market equilibrium and the cost of capital for both family and nonfamily firms. We propose an equilibrium model that incorporates the key features characterizing family firms – receipt of nonpecuniary socioemotional benefits, holding a nontraded and non-diversified control block, and information asymmetry between the family and other investors. The resulting information and competitive equilibrium model shows that the costs of capital for family and nonfamily firms operating inside the same economy are different. These differences yield important implications for corporate finance in terms of investment and financing at the macro level.



Review of Corporate Finance, Volume 2, Issue 4 Special Issue on Family Firms: Articles Overiew
See the other articles that are part of this special issue.