How Do Family Ownership, Control and Management Affect Firm Value?
Posted: 11 Nov 2009
Date Written: 2006
A panel data set on a sample of publicly traded U.S.firms is used to examine the effects of family ownership, control, andmanagement on firm value. The data sample comprises 2,808 observations on 508firms listed on the Fortune 500 between 1994 and 2000. Analysis of the data indicates that family ownership creates value for allof the firm's shareholders only when it is combined with certain forms offamily control and management. Family control in excess of ownership oftenresults in multiple share classes, pyramids, cross, holdings, and votingagreements, all of which reduce shareholder value. Family management adds value when the founder serves as the CEO; whendescendants assume the office of CEO, however, firm value decreases. Still,minority shareholders are likely to be no worse off in a family firm than theywould have been in a non-family firm. In fact, founder-CEO firms withcontrol-enhancing mechanisms are about 25 percent more valuable than non-familyfirms. (SAA)
Keywords: Family firms, Firm performance, Founders, Executive succession, Chief executive officers (CEOs), Valuation, Firm control, Management techniques, Shareholders, Firm ownership, Market value
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