How Do Family Ownership, Control and Management Affect Firm Value?

Posted: 11 Nov 2009

See all articles by Belen Villalonga

Belen Villalonga

New York University (NYU) - Leonard N. Stern School of Business

Raphael ('Raffi") H. Amit

The Wharton School UPENN

Multiple version iconThere are 2 versions of this paper

Date Written: 2006

Abstract

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

Suggested Citation

Villalonga, Belen and Amit, Raphael H., How Do Family Ownership, Control and Management Affect Firm Value? (2006). Journal of Financial Economics, Vol. 80, Issue 2, p. 385-417 2006. Available at SSRN: https://ssrn.com/abstract=1503822

Belen Villalonga (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Suite 9-160
New York, NY NY 10012
United States

Raphael H. Amit

The Wharton School UPENN ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6370
United States
215 898 7731 (Phone)

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