• Selected
• Entire List

Abstract:
Recent research has documented that family-controlled firms are very common around the world. This paper provides new evidence on the accounting and market performance of this type of companies. The empirical investigation is conducted on a market in which family firms are well-established and represent the most widespread form of ownership, namely Switzerland. Using panel data for the period 2003 to 2007 on companies listed on the Swiss exchange, we find evidence that family firms have a 1.19 higher Tobin’s Q and a 3% higher return on assets than non-family firms. A finer analysis reveals that the outperformance depends on the characteristics of the family business. First, we find evidence that family firms in which a second blockholder is present are even more profitable with a 5% higher return on assets and a 1.27 higher Tobin’s Q than non-family firms. In this case not only agency costs between management and shareholders are reduced but also between majority and minority shareholders by limiting private benefit extraction. Second, family firms in which a family is only an investor do not perform better than non-family firms. Only if family members are actively involved in management, as either CEO, Chairman or both do they add value and thus perform significantly better than outsiders. This indicates that family members have superior knowledge on their companies that is lost when they solely hold a financial participation in the firm. Finally, our results also show that these skills are not confined to the founder but are also present in heir-managed family firms. In particular we find that firms with descendant-CEO or founders acting as Chairman have better accounting and market performances.

family firms, ownership structure, corporate governance

Abstract:
In recent years, investments in fine wines have increasingly gained in popularity. Especially, the development of wine funds and indices (e.g. Liv-Ex in the U.K. and Idealwine in France) has improved the transparency and liquidity of this market and rendered it more attractive for investors. Maybe more importantly, an ever growing number of good press on the favourable risk-return profile of this “new” asset class has convinced investors of the advantages of holding wine in their portfolio. Recent academic evidence (e.g. Sanning et al. 2008, Masset-Henderson 2009) also indicates that wines consistently maintain low correlations with other assets and provide significant diversification benefits.

The current financial crisis has dramatically changed the situation prevailing on financial markets. In particular, the correlation between assets has been rising across the world. Consequently, diversification tends to be less effective or even to fail – precisely when it is most needed. Though, some people argue that wines have remained essentially unaffected by this “correlation breakdown” phenomenon and can still be considered as investment grade. Unfortunately, there is not yet any solid empirical evidence to build up a consensus.

The goal of this paper is precisely to analyze the impact of the financial crisis on the wine market. We want to assess (i) whether wine prices have changed simultaneously with other asset prices or with some delay; (ii) whether the amplitude of wine returns has been comparable to stock returns; (iii) whether the evolution of the wine market throughout the crisis has been homogenous or not; and, (iv) whether wines are more or less attractive for investors now than before the beginning of the crisis. We make use of a very large dataset taken from the Chicago Wine Company, consisting of more than 350’000 observations (hammer price) for the period 1996 to 2009. The dataset covers fine wines from different regions in France (Bordeaux, Burgundy, Rhône) and also from Australia, USA, Italy and Spain.

Preliminary (and incomplete) results indicate that wines have indeed experienced a significant price correction during the second half of 2008. However, they have outperformed equities by a factor of two, with returns of about -20% against -40% for the S&P 500. Comparing the performance of wines with other alternative asset classes like commodities, we notice that agricultural goods have earned relatively similar returns. The heterogeneity of the wine market shows with the most actively traded wines displaying more negative returns and a higher volatility than other wines. The exposure of wine to systematic market risk (i.e. its beta) has remained close to zero for every category while the beta of other agricultural goods has doubled to nearly 0.75 since the beginning of the crisis. This suggests that diversification benefits have held for wines but not necessarily for other asset classes.

wine as asset class, fi…nancial crisis, correlation breakdown, performance measurement