Are Family Firms Better Performers During the Financial Crisis?

Abstract

Despite extensive researches on efficiency of family firms in normal or good economic times, we know rather little about whether family firms are superior performers in recession times. Using a dataset covering firms from S&P 500 (US), FTE100 (UK), DAX 30 (Germany), CAC 40 (France) and FTSE MIB 40 (Italy) during the period 2006-2010, I give empirical evidences examining the performance of family firms vis-à-vis non-family firms during the current financial crisis. I find that broadly defined family firms, comprising 35 percent of the sample, do not outperform non-family firms during the crisis whether I use market performance measure (Tobin's Q) or accounting performance measure (Operating Return on Assets (OROA)). However, family firms with founder presence (as CEO, a board member or a significant blockholder) outperform by 18 percent relative to non-family firms in OROA. Tobin's Q of founder firms, by contrast, does not exhibit difference significantly. I interpret the attenuation of founder firms' market value premium as the result of high volatility of stock prices and investors' overreaction during the crisis (Veronesi, 1999; Glode et al., 2010). Further testing shows that in the crisis, compared with non-family firms, founder firms have less administrative costs incurred. Moreover, they invest significantly less and have better access to credit market. All these findings contribute to superior accounting performance of founder firms during the crisis. My results suggest that in the financial crisis, founder firms bear the least agency cost and Tobin's Q is not a good measure of corporate performance.

Family Firms, Political Connections, and Managerial Short-Termism

“…A company is called a family firm when family members own a share in the company or more than one members of the same family (marked by the same surname) are assigned for the position of commissioner or director (Zhou et al, 2017). Thus, we apply several types of family firms as follows: (1) family ownership 5% -9% (FF5), (2) family ownership 10% -19% (FF10), and (3) family ownership ≥ 20% (FF20) (Le Breton -Miller et al, 2011;Miller et al, 2011;Zhou et al, 2017). According to Lee and O'Neill (2003), there are different relationships between various ownership structures and R&D investment.…”

“…We divide family firms into three proxy classifications as follows: (1) family ownership 5% -9% (FF5), (2) family ownership 10% -19% (FF10), and (3) family ownership ≥ 20% (FF20) (Zhou et al, 2017;Le Breton-Miller et al, 2011). Table 5 shows that FF5 is positive and significantly related with managerial short-termism and significant at 5% (t-statistic = 2.17).…”

Family Involvement in Business and Financial Performance: A Panel Data Analysis

“…Annexure 1 continued Annexure 1 continued Chang, Hsiao, and Hu (2012) The family firm is more restrictively defined and identified as that where the largest controlling shareholder is a family group and at least two family members are involved on the board of directors or in senior management. Taiwan 2006Wang and Zhou (2012 • Founder firms are defined as firms in which the founder(s) hold(s) a position(s) as a board member, CEO, or a blockholder (has at least a 5% shareholding). • Heir firms are defined as firms in which the heir(s) (by blood or by marriage) of the founding family hold(s) a position(s), either as a board member, CEO, or a blockholder (has at least a 5% shareholding).…”

L’atténuation des contraintes financières sur les entreprises familiales : du fatalisme à l’action

“…Grâce à une grille de lecture qui leur est spécifique, les entreprises familiales, semblet-il, constituent une véritable résistance à l'uniformisation mondialiste dans la mesure où tout en admettant la présence d'investisseurs, elles ne se plient pas aux sirènes des modèles d'endettement et de la rentabilité à court terme qui ont pu se révéler catastrophiques. Elles représentent donc un véritable élément de stabilité économique dans une période de crise (Anderson, Mansi et Reeb 2003 ;Wang et Zhou, 2012).…”