Are Family Firms Better Performers During the Financial Crisis?
Abstract: This paper examines whether family firms are better performers during the global financial crisis. Using a dataset covering firms from S&P 500 (US), FTSE100 (UK), DAX 30 (Germany), CAC 40 (France), and FTSE MIB 40 (Italy) during the period of 2006-2010, we find that broadly defined family firms do not outperform non-family firms during the crisis. However, family firms with founder presence (as CEO, a board member or a significant blockholder) outperform non-family firms by 18 percent in Operating Return on Assets (OROA). Tobin’s Q and risk-adjusted Alpha of founder firms, by contrast, do not exhibit any difference. We interpret the attenuation of the market value premium of founder firms as the result of high volatility of stock prices and investors’ overreaction during the crisis (Veronesi, 1999; Glode et al., 2010). Further research shows that during the global financial crisis, founder firms invest less and enjoy better access to the credit market than non-family firms. Our analysis suggests that the superior performance of founder firms is largely caused by less incentive to invest in risky projects with a high likelihood of failure in order to boost earnings during the crisis. Furthermore, our results reveal that founder firms bear the least agency costs, and that Tobin’s Q and Alpha may not be the most appropriate measures of corporate performance during the financial crisis.
