On the Polylithic Nature of Family-Owned Businesses: Heterogeneous Responses to – and from – Brazilian Financial Market Reform

Accompanying the increasing globalization of firms and financial markets has been the growing belief that both firms and their financial markets will benefit from the adoption of improved corporate governance practices, particularly in emerging markets historically dominated by family-owned firms. We provide a more nuanced examination of this belief by advancing a theoretical perspective on the polylithic nature of family-owned firms, and use our typology of family firms to hypothesize why some family firms are more open to improved corporate governance than others. We contextualize our hypotheses using the recent Brazilian financial market reform, which allowed firms to self-select into new trading sub-segments distinguished by the stringency of corporate governance requirements. We offer and test differentiated predictions as to which type of Brazilian family-owned firms is most/least likely to self-select into more stringent trading segments, and with what financial market consequences. We predict and find that Brazilian financial markets do generally reward firms that choose a more stringent stock market segment, but do not anticipate that some firms engage in symbolic vs. substantive adoption of good governance practices. We discuss the implications of our approach and findings for research on corporate governance, family-owned firms, and institutional change in emerging markets.