Multi-family Cofounders and Firm Value

The paper shows the higher valuation of family firms occurs only for family firms founded by several non-related people (multi-family cofounding firms), particularly founder controlled multi-family cofounding firms. The evidence suggests that having at least two unrelated cofounders involved in management reduces agency problems through mutual monitoring, reducing the number of shareholder proposals and serving as a substitute for other governance mechanisms. Relative to single-family founding firms, multi-family cofounding firms are more likely to force out founders and less likely to allow descendants to take control after founders retire.