professors imperatore and pope
Research Family firms

Resolving the Growth v Control Dilemma

, by Andrea Costa
Family firms can raise new equity capital without relinquishing control, as Peter Pope and Claudia Imperatore suggest

Tenure-based voting rights (TVRs), that is those rights obtained by shareholders if they hold the shares for at least two years and lost if the underlying shares are sold or transferred, can significantly enhance family-controlled firms' investment trajectories without necessitating a loss of control. This is what Claudia Imperatore and Peter F. Pope, of Bocconi’s Department of Accounting, argue in their paper "Do Tenure‐Based Voting Rights Help Mitigate the Family Firm Control‐Growth Dilemma?", just published in the Strategic Management Journal.

This finding is particularly relevant for family firms where maintaining control is crucial, as TVRs facilitate increased equity issuance and investment. Furthermore, after adopting TVRs, these firms not only increase their investment but also see improvements in dividend payouts and minority shareholder representation, indicating a commitment to aligning interests with outside investors.

Family-controlled firms, which are numerous and economically significant in many economies, often face a dilemma: pursuing growth by raising external equity can dilute family control. As Peter Pope notes, “Family owners might prefer to forego profitable investments if the alternative is losing family control when investment requires new external equity capital to be issued.” This dilemma can lead to underinvestment and hinder the firms' growth and broader economic development. Control-enhancing mechanisms (CEMs) like TVRs provide a potential solution by allowing family owners to raise external capital without losing control.

TVRs grant additional voting rights to long-term shareholders, thereby incentivizing long-term investment and stability. In Italy, where TVRs were introduced in 2014, the adoption rate among companies increased from 8% in 2015 to over 23% in 2019. The study finds that smaller, financially constrained companies with significant investment opportunities are more likely to adopt TVRs. Importantly, family firms with fragile control increase their investment and equity issuance after adopting TVRs, with an average equity issuance increase of 3.7%.

Moreover, the study reveals that family firms adopting TVRs experience a three-fold increase in minority shareholder representation on their boards and enhance their dividend payouts. The authors interpret these findings as evidence that family owners use TVRs to reassure outside shareholders of their commitment to fair governance practices. This increased attractiveness to outside investors facilitates new equity issuance and boosts firm performance.

The findings of Imperatore and Pope suggest that TVRs can help resolve the control-growth dilemma in family-owned firms, benefiting both insiders and outsiders. Their research challenges the skepticism surrounding CEMs, demonstrating that TVRs can support good corporate governance and enhance corporate performance. As the authors conclude, “Our evidence suggests that TVR adoption can help resolve the control-growth dilemma in family-owned firms to the benefit of both insiders and outsiders. TVRs do not necessarily undermine good corporate governance or corporate performance.”


Bocconi University
Department of Accounting


Bocconi University
Department of Accounting