Family ownership, dual-class shares, and risk management

We investigate whether the use of dual-class shares affects the financial policy of Swedish public corporations. Specifically, we distinguish between firms that are controlled by owners with poor portfolio diversification (families) and those controlled by owners with diversified portfolios (institutions). We find that, on average, family-controlled firms do not rely on less debt, more corporate diversification, or more financial hedging than non-family firms do. For family-controlled firms, however, we find that controlling owners with higher vote-to-capital ratios are associated with firms with less debt and lower probabilities of hedging. This evidence is consistent with the perception that family-controlled firms use shares with different voting rights so as simultaneously to maintain control and reduce the family's portfolio risk.