Founding Family Ownership and Firm Performance: Evidence from the S&P 500

Abstract

We investigate the relation between founding-family ownership and firm performance in large, publicly traded U.S. firms. We find that family ownership is both prevalent and substantial; families are present in about one-third of the S&P 500 firms and account for over 18% of outstanding equity. Contrary to our conjecture, we find that family firms (both young and old) perform better and are more valuable than non-family firms. We also document that the relation between founding-family holdings and firm performance is nonlinear; performance first increases as the level of family ownership increases but then decreases with increasing family ownership. Additional analysis reveals that when families are actively engaged in firm management (i.e. a family member as CEO), firm performance is better than if an outsider is CEO. Overall, our results are inconsistent with the hypothesis that minority shareholders are adversely affected by continued founding-family ownership in U.S. firms and instead suggest that family ownership is an effective organizational structure.

Keywords: Capital and Ownership Structure, Firm Performance, Corporate Governance

JEL Classification: G3