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

47 Pages Posted: 13 Jun 2004

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: December 10, 2004

Abstract

Using proxy data on all Fortune 500 firms during 1994-2000, we establish that, in order to understand whether and when family firms are more or less valuable than nonfamily firms, one must distinguish among three fundamental elements in the definition of family firms: ownership, control, and management. Specifically, we find that family ownership creates value only when the founder serves as the CEO of the family firm or as its Chairman with a hired CEO. Control mechanisms including dual share classes, pyramids, and voting agreements reduce the founder's premium. When descendants serve as CEOs, firm value is destroyed. Our findings further suggest that the classic owner-manager conflict in nonfamily firms is more costly than the conflict between family and nonfamily shareholders in founder-CEO firms. However, the conflict between family and nonfamily shareholders in descendant-CEO firms is more costly than the owner-manager conflict in nonfamily firms.

Keywords: Family firms, ownership, control, management, value

JEL Classification: G32, G3

Suggested Citation

Villalonga, Belen and Amit, Raphael H., How Do Family Ownership, Control, and Management Affect Firm Value? (December 10, 2004). AFA 2005 Philadelphia Meetings; EFA 2004 Maastricht Meetings Paper No. 3620; Fifteenth Annual Utah Winter Finance Conference. Available at SSRN: https://ssrn.com/abstract=556032 or http://dx.doi.org/10.2139/ssrn.556032

Belen Villalonga (Contact Author)

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

40 West 4th Street
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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