Family Ownership Helps Cope with Political Uncertainty

The nexus between uncertainty and firms' investment policies has been discussed at length in literature. Uncertainty is considered detrimental for investments because it increases the benefit of delaying irreversible decisions. Are there exceptions to this rule? Does family ownership shape the relationship between uncertainty and investments? This is the question that Mario Daniele Amore and Alessandro Minichilli addressed in "Local political uncertainty, family control, and investment behavior," recently published in the Journal of Financial and Quantitative Analysis. Policy uncertainty is shaped by the electoral cycle: it spikes at every new election and tends to recede once the winning party clarifies and implements its policies. "Most of the literature so far has been concerned with national elections. We focused on regional elections instead because local politics can be a much more important arena for small and medium-sized enterprises," Mario Amore says. "We found out that political uncertainty leads to declining investment, but also that family control neutralizes this effect."

The family firms better-equipped to invest during uncertain times are the ones that are highly reliant on public demand and/or are managed by family members. Why does this help deal with uncertainty? "First: family-centric firms are less sensitive to uncertainty because their owners are more adept at establishing connections with the political system. Having access to information and being better positioned to deal with the political system enables them to navigate through uncertainty. Second: family firms usually invest for the long term which may even exceed the lifespan of the current owners. This attitude makes them less sensitive to temporary uncertainty, and it translates into significantly greater profitability and growth once the uncertainty is over."

Read more about this topic:
Nicolai Foss. Entrepreneurship Goes beyond Startups
Carlo Mammola and Luigi Mastromauro. Predicting Startup Success with Data
Good Business Plan not Enough for Success. Interview to Alisée de Tonnac
Creating an Identikit of Entrepreneurs from 1850 to Present
Grow Your Business but Minimize the Risks
The Key Role of Taxation Regimes for Startups
A Small Fee for Business Training Improves Course Attendance
Experimental DecisionMaking Approach Attracts Funding
Entrepreneurs Who Act Like Scientists Get Better Results
Avocado Toast Leads to Hot Brooklyn Startup. Interview to Alessandro Biggi
Turning "Spotify for Textbooks" into $4.8 mln. Interview to Perlego
Looking at Gender Bias in Funding Yields a Surprise Result
Family Firm Governance Results Linked to Context
Social Networks Foster Entrepreneurship
Taking Texting to the Next Level with Kaleyra. Interview to Dario Calogero
Connecting the Dots on How WWI Unleashed new Business Performance