The antecedents and influence of market liquidity of family firm shares

This dissertation explores the antecedents and consequences of market liquidity in the context of family firm shares, with a focus on privately held family businesses. Through three empirical essays, it investigates how market liquidity influences innovation, communication, and disclosure behaviors in family firms, while also considering generational differences in ownership and governance. The first essay introduces and validates a novel Index of Family Firm Liquidity to measure the market liquidity of privately held family firms. Drawing on a multidimensional construct, it incorporates latent indicators and validates them through rigorous statistical techniques, offering a practical tool for assessing liquidity in illiquid markets. The second essay examines the relationship between market liquidity and innovation, highlighting the mediating role of internal communication. Using survey data and regression analysis, it demonstrates that increased liquidity facilitates open communication channels, which in turn foster higher innovation outcomes in family firms. The third essay investigates how generational differences within family ownership structures affect disclosure policies and, in turn, influence market liquidity. It reveals that second- and later-generation family firms are more likely to adopt voluntary disclosure practices—such as corporate governance and accounting transparency—thereby improving their shares' market liquidity. Collectively, the three essays contribute to a deeper understanding of how financial market characteristics, such as liquidity, shape strategic decisions in family-controlled firms. The findings have important implications for investors, policymakers, and family business leaders seeking to balance control with financial flexibility, innovation, and transparency.