This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003-2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors.Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns. Although they are more profitable, family firms have lower valuations and regularly surprise markets by announcing better-than-expected earnings. The evidence suggests that outside investors earn a premium for being exposed to the specific agency problems present in family firms. JEL Classification: G32; G14Abstract This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003-2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors. Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns. Although they are more profitable, family firms have lower valuations and regularly surprise markets by announcing better-than-expected earnings. The evidence suggests that outside investors earn a premium for being exposed to the specific agency problems present in family firms. Citation proposalNicolas Eugster, Dušan Isakov. 2018. «Founding family ownership, stock market returns, and agency problems (Version october 2018)». Working Papers SES 490, Faculty of Economics and Social Sciences, University of Fribourg (Switzerland) Jel Classification G32, G14.

This paper explores the relationship between founding family ownership and stock market returns. Using the entire population of non-financial firms listed on the Swiss stock market for 2003-2013, we find that the stock returns of family firms are significantly higher than those of non-family firms after adjusting the returns for different firm characteristics and risk factors. Family firms generate an annual abnormal return of 2.8% to 7.1%. Moreover, family firms potentially having more agency problems earn higher abnormal returns. Although they are more profitable, family firms have lower valuations and regularly surprise markets by announcing better-than-expected earnings. The evidence suggests that outside investors earn a premium for being exposed to the specific agency problems present in family firms.

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