The Effect of Family Control on Firm Value and Performance. Evidence from Continental Europe
Scuola Superiore Sant'Anna di Pisa - Institute of Management
Università Cattolica del Sacro Cuore, Milano
ECGI - Finance Working Paper No. 88/2005
EFA 2005 Moscow Meetings Paper
We investigate the relation between ownership structure and firm performance in Continental Europe, using data from 675 publicly traded corporations in 11 countries. Our results confirm that families are the type of controlling shareholders that most recur to the control-enhancing devices which are associated with lower valuation and performance. However, even after taking into account that family-controlled corporations exhibit larger separation between control and cash-flow rights, our results do not support the hypothesis that family control hampers firm performance. Valuation and operating performance are significantly higher in founder-controlled corporations, and are at least not worse than average in descendants-controlled corporations. Thus, our results lead to the conclusion that family control is positive for firm value and operating performance in Continental European firms. This is true not only when the founder is still alive, but also when the controlling stake is held by descendants that sit on the board as non-executive directors. When a descendant takes the position of CEO, family-controlled companies are not statistically distinguishable from non-family ones in terms of valuation and performance.
Number of Pages in PDF File: 58
Keywords: Ownership structure, corporate governance, family firms
JEL Classification: G32, G34
Date posted: February 28, 2005
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