Investment Reputation Index: Family Firms Vs. Non-Family Firms in the UK

Abstract

Family firm researchers have found a host of characteristics that are unique to family firms. These familial attributes are often taken as plausible explanations for governance and operational differences between family firms and their non-family competitors. We use these familial characteristics as well as a host of 'non-family' specific provisions to build an Investment Reputation Index that measures the reputation of a family firm as an investment opportunity. The results of an empirical study of 199 'quoted' family firms supported the hypothesis that the investment reputation of a family firm has a positive impact on its performance. However, a similar empirical analysis using a measure of the Investment Reputation Index without the familial attributes, showed a stronger impact on performance, signifying a negative association with recognising the familial characteristics of the firm. An empirical analysis on a matched sample of 304 family- and non-family firms revealed that the investment reputation of a family firm can only be brought into comparable terms with the reputation of a non-family firm if the familial attributes are included in the analysis. Understanding 'How family is the family firm?' is important from an investor's point of view as it highlights the good practices of some family firms. An investor instead of grouping all family firms into one category can now differentiate between 'good' and 'bad' family firms with the help of the Investment Reputation Index.

Keywords: Corporate Governance, Family Businesses, Reputation, Investment Index

JEL Classification: G32, G34